SAP RAR Optimized Contract Management: Goods Issue...

Jitakshi_Sarmah · ‎2022 Dec 12

In this blog post I will be focusing on SAP Revenue accounting and reporting (RAR) Use Case for Event-Based Fulfillment - Goods Issue as well as Time-Based Fulfillment of Performance Obligations. A performance obligation (POB) can be fulfilled when a specified event happens which is Event-Based Fulfillment. A performance obligation can be fulfilled over a period of time which is Time-Based Fulfillment.

Performance Obligation Types

The goods or services that are promised in the contract represent a single performance obligation. SAP RAR has performance obligation types, and this represents data which addresses queries on fulfillment type; if it is Time or Event Based, and also specifies about the duration.

IMG Path - Financial Accounting -> Revenue Accounting -> Revenue Accounting Contracts -> Define Performance Obligation Types

Configuration Of POB Types

Fulfillment Event Types

Performance obligations can be fulfilled on the occurrence of an event. They can also be fulfilled over a period of time, starting from the occurrence of such an event.

IMG Path - Financial Accounting -> Revenue Accounting -> Revenue Accounting Contracts -> Define Fulfilment Event Types

Fulfilment Event Types

Goods Issue and Time Based

One can fulfill performance obligations (POBs) upon goods issue.

Time-based fulfillments for performance obligations involve subscriptions, for example contracts, where services are provided on a regular basis for the duration of the contract.

How the Goods Issue Process Is Integrated in Sales and Distribution with Revenue Accounting?

The revenue accounting contract is created based on the sales order.

When goods issue is triggered, a fulfillment event is triggered. Revenue accounting generates revenue and cost recognition postings using the actual quantity of goods issue as the fulfillment quantity.

The cost of goods sold (COGS) is posted in the operational system, based on goods issue. The COGS is then corrected in Revenue Accounting.

Use Case

Company enters into a contract with customer (17100003) for 30,000 USD for providing Hi-Tech Equipment (TG11) together with Consumable Spare Parts (TG12) and Warranty (SM001) of during contract validity from 14th October 2022 to 17th February 2023 (4 months).

Items	Qty	SO Rate	Standalone Sales Price	Contractual Price	Total SSP	Allocated Amount	Allocation Effect
TG11	1	27,000	20,000	27,000	20,000	27,272.73	272.73
TG12	5	500	340	2,500	1,700	2,318.18	(181.82)
SM0001	1	500	300	500	300	409.09	(90.91)
Total				30,000	22,000	30,000	0

Calculation Check Points:

Allocated Amount = Standalone Selling Price of Item X Complete Contractual Price / (Sum of all Stand-Alone Selling Price (SSP))

Allocation Effect = Allocated Amount – Contractual Price of Item

Step 1: Value Contract

Value Contract is created with materials & services associated with agreement.

Value Contract

Step 2: Sales Order

With reference to value contract further Sales Order is created and condition type PPR0, Standalone Sales Price (SSP) will be manually updated at every item level for testing but without SSP system will not save the Sales Order.

Sale Order

Step 3: Process Revenue Accounting Item’s related to Sales Order (Step 1)

For many entities, Step 1 will be straight forward; the key point is to determine when a contract exists. Using Tcode FARR_RAI_MON or Fiori App Manage Revenue Accounting Items, all sales order items will be showcase initially as processable RAI’s. Then all such processable RAI’s are transferred using default sender integration component as SD with RAI class as SD01 with source document item type as SDOI to RAR.

View RAR Contract and Performance Obligations (POB’s) (Step 2)

Through Tcode FARR_RAI_MON or Fiori App Manage Revenue Accounting Items, all sales order items will be showcase initially as processable RAI’s. Such processable RAI’s are further transferred collectively or individually transfer to RAR. Once RAI’s are processed successfully, in 1^st step system will automatically create one Revenue Recognition Contract 1000000300 against one Sales Order and in 2^nd step Performance Obligations 2000003000/01/02 for each Sales Order items.

RAR Contract – Price Allocation (Step 3, 4)

As per IFRS 15 prerequisite, RAR component will automatically perform the allocation amount and allocation effect against each Performance Obligation. This determines transaction price and allocate to the separate POB’s level.

RAR Contract – Revenue Schedule (Before Fulfillment)

RAR Contract will calculate detail revenue schedule with status of each POB’s fulfillment type and status.

Step 4: SD – Outbound Delivery and Post Goods Issue

With reference to Sales Order, Outbound Delivery and PGI done for material relevant order items.

Step 5: Process Revenue Accounting Item’s related to Fulfillment

In transaction FARR_RAI_MON or Fiori App Manage Revenue Accounting Items, All fulfillment items related to order will be showcase initially as processable RAI’s. Then all such processable RAI’s are transferred using default sender integration component as SD with RAI class as SD02 with source document item type as SDFI to RAR.

RAR Contract – Revenue Schedule (After Fulfillment) (Step 5)

This is the final step to determine for each POB when revenue should be recognized. Revenue is recognized when POB is fulfilled – that is when goods are posted or services are eligible for post. The system records costs and recognizes revenue based on allocated amounts. The goods issue posting triggers real time creation of the revenue entry recording contract asset based on the allocated revenue. The solution is based on the Universal Journal and provides real time information on the data at point of time.

Step 6: Customer Billing

Customer billing will be posted.

Step 7: Process Revenue Accounting Item’s related to Billing

In transaction FARR_RAI_MON or Fiori App Manage Revenue Accounting Items, All Invoice Items related to billing will be showcase initially as processable RAI’s. Then all such processable RAI’s are transferred using default sender integration component as SD with RAI class as SD03 with source document item type as SDII to RAR.

Summary of RAR Contract – Revenue Schedule (After Fulfillment)

In transaction FARR_RAI_MON or Fiori App Manage Revenue Accounting Items, RAR Contract details will be displayed with all information related to Order Items, Fulfillment Items and Invoice Items.

In October we can see 25% completion of the Service Item

In November we can see 50% completion of the Service Item

Service item will be 100% completed by the end of contract period which is 4 months in this case.

We can also see the document flow in Fiori App – Manage Revenue Contracts as below:

This brings us to end of test case of RAR Use Case for Event-Based Fulfillment - Goods Issue as well as Time-Based Fulfillment of Performance Obligations.

Hope you find this blog informative and helpful.

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Thanks,

Jitakshi