Revenue recognition - Deferred revenue

[Former Member]

Dear All,

I have gone through the SCN search and not able to get the right answer to my below process -

Scenario - My client is offering annual maintenance contract for servicing of a product they sell...Lets say AMC value for 5 years is Rs.500000/- and this amount is distributed on per year basis...please note that Rs.500000/- is paid upfront so it is advance and credited as accrued revenue...Since services are not yet rendered, I have to take in this amount as deferred revenue and recongnize revenue on per year (which further distributed equally on per month basis) basis as show below -

1st year - AMC for servicing is Rs. 50000/-

2nd year - AMC for servicing is Rs. 75000/-

3rd year - AMC for servicing is Rs.100000/-

4th year - AMC for servicing is Rs.125000/-

5th year - AMC for servicing is Rs.150000/-

So for 1st year servicing Rs.50000 is equally distributed by dividing number of months of a year...so it is Rs.50000/12 = Rs. 4167 per month...

Now i have to recognize this revenue with Rs.4167/- and debit deferred revenue...this i need to do on per month basis for entire 5 years...

How can i achieve this and automate the process in SAP ERP system??

Please feel free to ask questions, if i am not clear with the process...

Thanks & Regards

ViEsh

[venu_ch8 · Accepted solution]

Dear Vishwas

So for 1st year servicing Rs.50000 is equally distributed by dividing number of months of a year...so it is Rs.50000/12 = Rs. 4167 per month...

Check with FI Consultants ..in VKOA --2nd G/L Account is there name is Provision account

it controls this type of Functionality ..

Let me know

[Former Member · Accepted solution]

Hi Venu,

Thanks for the answer...that i know in VKOA there is provision...

Now lets take 1st year is completed then how to go for 2nd year i.e. Rs.75000/-...How the system will take in Rs.4167/- per month and at the end of year the system switch over to Rs.75000/12 = Rs.7500/-...then subsequently for 3rd year...

Please understand that there will be full invoice for Rs.500000/- will created against sales order via contract and credited as accrued revenue...Now I am trying to get all these break up values for 5 years in a sales order and set revenue recognition on those value...

What configuration i need to do in system or do i need to go for development...is there any OSS note available to achieve this...

Thanks & Regards

ViEsh

[venu_ch8 · Accepted solution]

Dear vishwas ..

As per my knowledge it is not possible  in sap standard , but wait for comments of experts and check With FI Consultants .

Thanks a lot

[jobis]

Hi Vishwas,

Though I dont have the solution for this, i would like to suggest that, you discuss this with your FI consultant.

Also you may explore features in Customer Service Module, as this is a pure CS case.

From SD side you may explore the Periodic billing plan . as suggested by Lakshmi G.

Regards

Jobi

[Former Member]

Hi Jobi,

Thanks for the msg...the problem here is that client is not ready to make any changes in the existing process and system...they are realizing revenue recg manually today by creating manual sales orders...this process they want to automate in SAP...

Thanks & Regards

ViEsh...

[former_member184555]

 Scenario - My client is offering annual maintenance contract for servicing of a product they sell...

If your client is not using contracts....which sales document is created for the annual maintenance contract you have mentioned above. Based on which sales document the customer is paying the amount in advance?

Regards,

Ravi Sankar

[Former Member]

Hi Ravi,

I think you have not read my earlier postings...they are creating contract in DMS system which is siebel system and via intrefact the same flows to SAP and sales order are being created in SAP...

[Former Member]

Hi Vishwas,

     Map the Per year price from DMS system to SAP Service contract as Periodic Billing plans. You can either map them to a monthly or annual billing plan. Since you are charging the customer in advance for the 5 years contract period, consolidate all the billing plans into one Invoice.

  To automate the revenue recognition, make your  item category revenue recognition rule as "Time Based Revenue Recognition".

Thanks,

Lakshmi Narayana.G

[Former Member]

Thanks LNG...

Using SAP service contract is not in scope...

What client is looking at, in DMS system they will provide 5 years break up values as mentioned in my 1st msg -

They wants these break up values to flow in Sales order...interface is already in place...

What task i need to do is to apply revenue recognition on these break up values coming in from DMS to SAP system...

These values are on per year basis...i need to apply rev recg on per month basis...

How can i achieve this??

Thanks & Regards

ViEsh

[Former Member]

Just a Wild Thought :

Create a Customer Account ( Name it as Customer X AMC Account)

Add an Entry of Payment Recieved from the customer in that Account - So this account has Positive Balance.

Now Create a Contract / Scheduling agreement for 5 years for that Customer Account (the new one - AMC Related)

Every year the billing can be created and can be reconcilled with the balance already present in the AMC customer account.

This will allow the proper entry into your books for accounting as the payment received will not be shown as your income till it is realised every year.

[former_member220617]

Dear Vishwas ,

you can create service contract order with 5 line items or 1 line items with quantity as 1 month, based on your scenario through billing plan you have to give start date and end date .here you have write rotinue for base price condition in condition calculation rule , based on from and to date(year by year) total values in DMS /12 and this price will copy every month to your sales order from DMS to Rotinue through interface.

Regards,

[former_member220617]

Dear Vishwas ,

As per your scenario you given requirement , but you did explain how you want input to map in SAP .

As per my understanding I will give some inputs which will useful for you process.

1. create sales contract in VA41 with item category WVN , here it is AMC service so there is no delivery , you can map with reference to sales contract create billing with F2 .

2. here it is fixed for 5 years  with 500000 , so check the dependence how you will maintain price ,type of condition, some routine for calculating the amount in alternative calculation base value ..etc....

please let me know for further inputs .

Regards,

[Former Member]

Dear C.B. Reddy, Thanks for the reply - 1. This is the Thanks scenario for vehicles. Dealer sell vehicle and also sell AMC for servicing of such vehicles. 2. As i have mentioned in my first msg. services are for 5yrs and AMC value is 5LACS. 3. But i cannot take 5lacs as recognized revenue since full services are not rendered. 4. Service contracts are created in dealer management system (DMS which is NON SAP) system. These contracts flows in SAP via interface and sales order are being created and subsequent invoice for full 5lacs. 5. I am trying to get 5 yrs break up value from DMS system to sales order in SAP and set revenue recognition on that. 6. Lets say for 1st year the service value is Rs.50000, so i need to distribute this value equally for that one year and every month show Rs.4167 as revenue recognized. 7. So in that case every month Rs. 4167 will be credited as sales revenue and same amount should be debited from deferred revenue account. 8. Subsequent years the value will be changed as per set amount for that particular year like for 2nd year Rs.75000/-, 3rd year Rs.100000 etc... I hope i am clear above, if any questions please feel free to ask... Thanks & Regards ViEsh

[Former Member]

I am still waiting for solutions ffrom experts...even nearby solution would be great...

Thanks & Regard

ViEsh

[Lakshmipathi]

so i need to distribute this value equally for that one year and every month show Rs.4167 as revenue recognized

Explore the Periodic Monthly Billing Plan functionality so that in contract Billing Plan tab, you can maintain the above value month wise for one year

G. Lakshmipathi