Immediate Payment Annuity

An annuity contract that is purchased with a single lump-sum payment and in exchange, pays a guaranteed income that starts almost immediately. An immediate payment annuity is especially suitable for retirees who are concerned about outliving their savings. However, one disadvantage is that an immediate payment annuity is irreversible once it has been purchased. This may pose a problem should the annuitant need a large sum to deal with an emergency.

 

Another large drawback of an immediate payment annuity is that it is terminated upon death of the annuitant. This means that in the event of the annuitant's premature death, the size of the estate left to his or her heirs may be much smaller than it would have been if the immediate payment annuity had not been purchased. Since the annuity payments are terminated upon the death of the annuitant, financial planners do not recommend this type of annuity for retirees who are not in good health.

Manufactured Payment

A payment made to pass through dividend and interest payments from the borrower to the lender of those securities. Manufactured payments, represented as interest or dividend payments, occur frequently in securities lending. In such an arrangement, title to the securities passes to borrower, but the lender customarily maintains the right to payments which accrue on the security.

Short selling is the most common situation in which one must borrow securities. In order to sell a stock short, a trader must borrow the stock. Since the short seller has borrowed the security, dividend payments made on the stock during the term of the loan must be paid to the lender. This can be a significant cost of short selling if a stock pays a high dividend yield.

Lease Payments

A line item under long-term debt on a balance sheet that indicates the value of future lease payments due. Lease payments vary widely between companies, and so it is not necessarily good to compare two companies' lease-payment figures, even if they are in the same industry. It is more valuable to compare long-term debt as a whole.

 

Lease payments can be made by individuals as well as companies. Leases are most commonly used by individuals to finance cars, but can also be used to obtain computers and land, among others things. A company's lease payments are used in the calculation of the fixed-charge coverage ratio. This ratio helps investors see if a company can cover its fixed expenses, such as leases and interest.

Accelerated Payments

A term associated with making additional unscheduled payments on a loan at predetermined, or random intervals. Making additional unscheduled payments reduces the principal balance of the loan, meaning that more principal and less interest is paid off in subsequent payments. Making accelerated payments will lead to the early pay-off of a loan.

 

The amount of interest paid with each payment is a function of the remaining principal balance of the loan at that time. The higher the rate of interest on a loan, the more beneficial it can be to make accelerated payments. The faster the borrower applies accelerated payments toward the principal balance of a loan, the more interest that is saved.

Payment and Settlement Systems Act, 2007 (PSS Act, 2007)

The PSS Act, 2007 provides for the regulation and supervision of payment systems in India and designates the Reserve Bank of India. The Act also provides the legal basis for “netting” and “settlement finality”.

Waterfall Payment

A type of payment scheme in which higher-tiered creditors receive interest and principal payments, while the lower-tiered creditors receive only interest payments. When the higher tiered creditors have received all interest and principal payments in full, the next tier of creditors begins to receive interest and principal payments.

 

For example, this type of payment scheme would work for a company repaying more than one loan. Assume this company has three operating loans, all with different interest rates. The company would make principal and interest payments on the more costly loan, and make only interest payments on the remaining two loans. Once the more expensive loan is paid off, the company can make all interest and principal payments on the next, more expensive loan. The process continues until all loans are repaid.

Down Payment

A type of payment made in cash during the onset of the purchase of an expensive good/service. The payment typically represents only a percentage of the full purchase price; in some cases it is not refundable if the deal falls through. Financing arrangements are made by the purchaser to cover the remaining amount owed to the seller. 

Making a down payment and then paying the rest of the price through installments is a method that makes expensive assets more affordable for the typical person.

 

For example, because houses are extremely expensive assets, home buyers typically pay down payments that equal 5-25% of the total value of a home. The remaining 75-95% of the price will be covered by a bank or other financial institutions through a mortgage loan.

Group Depreciation

A method of calculating depreciation by amalgamating assets into a pool, or group, which is used for a depreciation cost base. The assets grouped together should be similar in the way they function, or each asset should be small enough that it is not considered material on its own, which will make group depreciation more relevant for financial accounting purposes.

When pooling assets that are similar in nature, such as all of a company's delivery trucks that travel about the same distance every year, a company can simplify its depreciation calculation. However, before deciding to pool assets into one group, it is important to consider how each asset will be depreciated individually, and if it makes sense to group this asset with any others.

Currency Depreciation

A decrease in the level of a currency in a floating exchange rate system due to market forces. Currency depreciation can occur due to any number of reasons – economic fundamentals, interest rate differentials, political instability, risk aversion among investors and so on. Countries with weak economic fundamentals such as chronic current account deficits and high rates of inflation generally have depreciating currencies.

Currency depreciation, if orderly and gradual, improves a nation’s export competitiveness and may improve its trade deficit over time. But abrupt and sizeable currency depreciation may scare foreign investors who fear the currency may fall further, and lead to them pulling portfolio investments out of the country, putting further downward pressure on the currency.

Depreciation Recapture

The gain received from the sale of depreciable capital property that must be reported as income. Depreciation recapture is assessed when the tax basis of an asset exceeds the sale price. The difference between these figures is thus "recaptured" by being reported as income. 

For example, suppose that Frank buys business equipment for $10,000 and uses it for eight years. The total depreciation deduction is $6,000. Then he sells the equipment for $6,000. He must declare a "recaptured" gain of $2,000, the difference between the actual sales price and the depreciated tax basis of $4,000 ($10,000-$6,000).

Economic Depreciation

A measure of the decrease in value of an asset over a specific period of time. This usually pertains to property such as real estate that can lose value due to indirect causes such as the addition of new construction in close proximity to the property, road additions or closures, a decline in the quality of the neighborhood, or other external factors.

In periods of economic downturn and general housing market decline, economic depreciation must be considered in the appraisal of any property. During the credit crisis and housing market collapse of 2008-09, the combination of subprime loans requiring low or no down payments with the dramatic drop in housing values resulted in a significant amount of the U.S. home owning population being "underwater" - meaning that they owed more money on their home than it was actually worth.

Double-Declining-Balance Method

The DDB method simply doubles the straight-line depreciation amount that is taken in the first year, and then that same percentage is applied to the un-depreciated amount in subsequent years.

DDB In year i = (2 / n) * (total acquisition cost - accumulated depreciation till (i-1) year)  n = number of years

Example 
For $2 million, Company ABC purchased a machine that will have an estimated useful life of five years. The company also estimates that in five years the company will be able to sell it for $200,000 for scrap parts.

DDB for year 1 = (2/5)*(2,000,000 – 0) = 800,000

DDB for year 2 = (2/5)*(2,000,000 – 800,000) = 480,000

Sum-Of-Year Method

An accelerated method for calculating an asset's depreciation. This method takes the asset's expected life and adds together the digits for each year. So if the asset was expected to last for five years, the sum of the years' digits would be obtained by adding: 5 + 4 + 3 + 2 + 1 to get a total of 15.

Depreciation In Year i 
= ((n-i+1) / n!) * (total acquisition cost - salvage value)

Example:

For $2 million, Company ABC purchased a machine that will have an estimated useful life of five years. The company also estimates that in five years, the company will be able to sell it for $200,000 for scrap parts. In this case, 
n! = 1+2+3+4+5 = 15
n = 5 Depreciation expense for 2nd year = ((5-2+1)/5!)*(2,000,000 – 200,000) = 480,000

Accelerated Depreciation

Accelerated depreciation is used for accounting or income tax purposes that allow greater deductions in the earlier years of the life of an asset. The major benefit of using this method is the tax shield it provides. Companies with a large tax burden might like to use the accelerated-depreciation method, even if it reduces the income shown on the financial statement.

Companies that have used accelerated depreciation will declare fewer earnings in the beginning years and will seem more profitable in the later years. Companies that will be raising financing are more likely to use accelerated depreciation in the first years of operation and raise financing in the later years to create the illusion of increased profitability (and therefore higher valuation). The two most common accelerated-depreciation methods are the sum-of-year (SYD) method and double-declining-balance method (DDB).

UCommerce

Universal Commerce or UCommerce is the intersection of online, kiosk, and in-store payment enablement, incorporating social media and near-field communications.

Unit-Of-Production Depreciation

This method provides for depreciation by means of a fixed rate per unit of production. Under this method, one must first determine the cost per one production unit and then multiply that cost per unit with the total number of units the company produced within an accounting period to determine its depreciation expense. In units of production method, higher depreciation is charged when there is higher activity and less is charged when there is low level of operation.

Depreciation =	Number of Units Produced	× (Cost − Salvage Value)
	Life in Number of Units

Straight-line Depreciation

The simplest and most commonly used method, straight-line depreciation is calculated by taking the purchase or acquisition price of an asset, subtracting thesalvage value (value at which it can be sold once the company no longer needs it) and dividing by the total productive years for which the asset can reasonably be expected to benefit the company (or its useful life).

Example: For $2 million, Company ABC purchased a machine that will have an estimated useful life of five years. The company also estimates that in five years, the company will be able to sell it for $200,000 for scrap parts. In this case, the Depreciation Expense for is $360,000 per year.

Accumulated Depreciation

The cumulative depreciation of an asset up to a single point in its life. Regardless of the method used to calculate it, the depreciation of an asset during a single period is added to the previous period's accumulated depreciation to get the current accumulated depreciation. An asset's carrying value on the balance sheet is the difference between its purchase price and accumulated depreciation.

 

A company buys an asset for $5,000 that has a five-year lifespan and zero salvage value. The company uses straight-line depreciation, and the asset depreciates at a rate of $1,000 per year.

Depreciation

A method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes.

 

Depreciation is used in accounting to try to match the expense of an asset to the income that the asset helps the company earn. For example, if a company buys a piece of equipment for $1 million and expects it to have a useful life of 10 years, it will be depreciated over 10 years. Every accounting year, the company will expense $100,000 (assuming straight-line depreciation), which will be matched with the money that the equipment helps to make each year.

Buyer Initiated Payment - BIP

BIP is an electronic payment method that allows you to leverage your billing cycle to extend payment terms with your suppliers. With BIP, you can accelerate payments to suppliers while extending Days Payable Outstanding (DPO). You'll also gain greater efficiency and cost savings from replacing paper checks with electronic payments.

Net Unrealized Appreciation - NUA

The difference in value between the average cost basis of shares and the current market value of the shares held in a tax-deferred account.

 

The NUA is important if you are distributing highly appreciated company stock from your tax-deferred employee-sponsored retirement plan, such as a 401(k). Upon the distribution the NUA is not subject to ordinary income tax. For this reason it may be better to transfer the company stock to a regular brokerage account instead of rolling the stock over to a tax-deferred IRA: that is, if rolled over to an IRA, the company stock's NUA would eventually be taxed at your ordinary income tax rate (when you take distribute the stocks).