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Revenue Recognition with RA on Service Contracts

ravichandran_iyer
Active Contributor
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We have configured SD Revenue Recognition function (ECC 5.0). We have warranty maintenance contracts running. On this basis we have the following scenario and issue.

The warranty maintenance contracts are created without a billing plan (Reqmt. type SE so that we can settle costs later). The value of which is transferred to Deferred Revenue Account and is recognised at the end of the contract period (As it bears the retention money with the customer). Until this step things are working fine. We use VF44 to recognise revenues.

However, there are costs incurred (both material & labour) in relation to such contracts. To track this, we create a Service Order s against the Service Contract for each month. Later on fulfillment, the orders are settled to the Service Contract. This is reflecting in the Service Order. But the finance team wants to recognise the revenues to the extent of costs incurred. I'm not sure how we can do this. The following is an example scenario.

Contract Value : $1000

Contract period : 1 yr (1.1.2010 to 31.12.2010)

Contract billed at the start of the year on 1.1.2010 so the amount is moved to Revenue Provision (Deferred Revenue)

At the end of the year $1000 lying in Deferred Revenue will be moved to Revenue Account through Revenue Recognition (VF44)

Now, costs incurred as follows which are booked in separate service orders against the contract and on completion, settled to the contract. There is no definite schedule for these costs.

Apr 2010 : $100

Jun 2010 : $200

Sep 2010 : $500

Now, the finance team wants to recognise revenue to this extent during the relevant periods. For eg.

Apr 2010 :

Deferred Revenue A/c $100

To Revenue A/c $100

Jun 2010 :

Deferred Revenue A/c $200

To Revenue A/c $200

Sep 2010 :

Deferred Revenue A/c $500

To Revenue A/c $500

And at the end of Dec 2010 :

Deferred Revenue A/c $200

To Revenue A/c $200

(for the remaining amount)

Can anyone guide me how this can be achieved? Can I do it by running RA on Service Contracts?

Thanks in advance.

Ravi.

Accepted Solutions (0)

Answers (1)

Answers (1)

Former Member
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Hi Ravi,

Even I have the same requirement with RA .I am unable to find a standard solution but please keep me posted if you find any.

Thanks,

Sai.

RahulGoyal
Active Participant
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One option:

This is how we do it in my company. This scenario is of committed services where biling is based on bill plan but revenue is as incurred. So you will bill 100% in advance to have a deferred position but evey month you calculate the service delivered/incurred and recognize the revenue reference to that service. You have to deliver the equivalent hours (To match the amount you want to recognize) and the VF44 based on delivery document. You might have to adjust your ETC based on the amount you want to recognize every month and the total qyantity to deliver.

In summary, basically you use following steps:

1. Sales order with delivery related item category (Assigned to service contract, in my case we use WBS).

2. VF04 for billing as per plan

3. VL01N to deliver the quantity matching the amount

4. VF44 with reference to delivery.

Item category has revenue recognition 'B'.

Hope it gives some idea.

Thanks.

Rahul

Former Member
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Hi Rahul,

In my business process we are not using delivery documents and also Billing plans ,do you have any other ideas that might work in my case.

Right now I have enhancement as the only option but before going that route want to make sure that there is no standard way of configuring the system.

I know this is not my case but as this is related to the case I am discussing here.

Thanks,

Sai.

ravichandran_iyer
Active Contributor
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Thanks Rahul for your time.

I found my solution, though I'm still testing it. The solution is as under.

I defined the RA key in the Service Contract and Service Order.

After the Service Order is settled to the Contract, I run RA on Service Contract (KKA3). Then I run settlement of Service Contract (VA88). On settlement, the Revenue Recognition entry is created to the extent of costs settled via Service Orders. i.e

Revenue in Excess of Billings DR

Revenue Account CR

Every time I create a new Service order and post costs, I have to follow the same flow. In which case, only the incremental costs will be posted in RA.

@Sai,

In my case too, there are no delivery documents, no billing plans. So this should apply for you too.

Ravi.

Former Member
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Hello Ravi,

Can you let me know some specifics like what RA Method and any changes in Valuation method would help me.

Thanks,

Sai.

ravichandran_iyer
Active Contributor
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I used RA method 16 in my case. But 3 and 17 should work good too. I used them as I dont have Revenue in my Order/Contract.

In settlement profile, I allowed GL settlement and I had to add the cost elements in the Allocation structure.

Ravi.

Former Member
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Hello Ravi,

Appreciate your help.We are already using RA Method 3 and it will not true up costs and revenues based up on costs.It calculates Calculated Rev based up on POC.but RA Method 17 works just fine .

Thanks again,

Sai.