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Ratable Accrual Method

What is 'Ratable Accrual Method'

A method for determining when and how much income was earned over a period of time. The ratable accrual method can be used to compute the interest income for tax purposes. This is opposed to the payment method, and could be used to find the accrued market discount of a discount bond traded in the secondary bond market. It can also be used to determine property tax on real estate held over several tax periods.

Explaining 'Ratable Accrual Method'

The ratable accrual method usually results in a greater accrual of discount than the other method for determining accrued market discount, which is the constant yield method. However, it also uses a simpler calculation: market discount is divided by the number of days from the bond's maturity date minus the purchase date, multiplied by the number of days the investor actually held the bond.





For example if you bought a $20,000 bond for $18,000 with 400 days until expiry, then you sold that bond 300 days later for $19,500. To compute interest income you would multiply the portion of the days held by the increase in value. 300/400 = 0.75. $19,500-$18,000 = $1,500. 0.75 x $1,500 = $1,125 interest income for tax purposes.


Further Reading


Section 461 and Accrual-Method Taxpayers: The Treatment of Liabilities Arising from Obligations to be Performed in the Future
www.jstor.org [PDF]
… refill and resurface the land in question until 1946.22 The partnership nonetheless accrued the estimated … order for a deduction for the reasonably estimated cost of the liability to accrue … 33 for example, the Fifth Circuit Court of Appeals permitted an accrual-method taxpayer who …

Interest Accrual and the Time Value of MoneyInterest Accrual and the Time Value of Money
heinonline.org [PDF]
… refill and resurface the land in question until 1946.22 The partnership nonetheless accrued the estimated … order for a deduction for the reasonably estimated cost of the liability to accrue … 33 for example, the Fifth Circuit Court of Appeals permitted an accrual-method taxpayer who …

The Miracle of Compound Interest: Interest Deferral and Discount After 1982The Miracle of Compound Interest: Interest Deferral and Discount After 1982
heinonline.org [PDF]
… refill and resurface the land in question until 1946.22 The partnership nonetheless accrued the estimated … order for a deduction for the reasonably estimated cost of the liability to accrue … 33 for example, the Fifth Circuit Court of Appeals permitted an accrual-method taxpayer who …

The Deduction of Future Liabilities by Accrual-Basis Taxpayers: Premature Accruals, the All Events Test, and Economic PerformanceThe Deduction of Future Liabilities by Accrual-Basis Taxpayers: Premature Accruals, the All Events Test, and Economic Performance
heinonline.org [PDF]
… refill and resurface the land in question until 1946.22 The partnership nonetheless accrued the estimated … order for a deduction for the reasonably estimated cost of the liability to accrue … 33 for example, the Fifth Circuit Court of Appeals permitted an accrual-method taxpayer who …

Impact of Economic Performance Regulations on Accrual Basis TaxpayersImpact of Economic Performance Regulations on Accrual Basis Taxpayers
heinonline.org [PDF]
… refill and resurface the land in question until 1946.22 The partnership nonetheless accrued the estimated … order for a deduction for the reasonably estimated cost of the liability to accrue … 33 for example, the Fifth Circuit Court of Appeals permitted an accrual-method taxpayer who …

Behind closed doors at WorldCom: 2001Behind closed doors at WorldCom: 2001
meridian.allenpress.com [PDF]
… refill and resurface the land in question until 1946.22 The partnership nonetheless accrued the estimated … order for a deduction for the reasonably estimated cost of the liability to accrue … 33 for example, the Fifth Circuit Court of Appeals permitted an accrual-method taxpayer who …

Tax Accounting Methods and Economic PerformanceTax Accounting Methods and Economic Performance
heinonline.org [PDF]
… refill and resurface the land in question until 1946.22 The partnership nonetheless accrued the estimated … order for a deduction for the reasonably estimated cost of the liability to accrue … 33 for example, the Fifth Circuit Court of Appeals permitted an accrual-method taxpayer who …

The Ageless All-Events Hurdle-Part IIThe Ageless All-Events Hurdle-Part II
heinonline.org [PDF]
… refill and resurface the land in question until 1946.22 The partnership nonetheless accrued the estimated … order for a deduction for the reasonably estimated cost of the liability to accrue … 33 for example, the Fifth Circuit Court of Appeals permitted an accrual-method taxpayer who …

Current Approaches to Corporate Debt and Financing Techniques and Related Tax ConsiderationsCurrent Approaches to Corporate Debt and Financing Techniques and Related Tax Considerations
heinonline.org [PDF]
… refill and resurface the land in question until 1946.22 The partnership nonetheless accrued the estimated … order for a deduction for the reasonably estimated cost of the liability to accrue … 33 for example, the Fifth Circuit Court of Appeals permitted an accrual-method taxpayer who …



Q&A About Ratable Accrual Method


What does the constant yield formula do?

The constant yield formula determines accrued market discount of a bond traded in secondary market.

How is the ratable accrual method different from the payment method?

The ratable accrual method is different from the payment method because it uses a simpler calculation.

What does the ratable accrual method calculate?

The ratable accrual method calculates interest income for tax purposes.

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