COGS has to book In Finance based on the milestone percentage

[Former Member]

Dear Experts,

My Client has a business scenario

Building renovation Business- they are considering  this as a Project with multiple milestones.

Project based procurement will happens and will be delivered at site

Example

Project value is USD 1000

Raw materials will be delivered at customer site worth of USD 400

First Milestone is 20% of Project - USD 200

Second Milestone is 30% of the Project USD 300

Third Milestone is 40% of the Project USD 400

Final settlement is 10 % of the project USD 100

Now raw materials expenditure is USD 400

but First Milestone going to receive USD 200

When the fist quarter if i analyse the project status - it shows loss

so client wants to book the COGS in finance based on the milestone 20% of billing

Is it possible , or please guide me how to solve this issue?

Regards,

Pratheep

[Former Member · Accepted solution]

Hi,

For milestone billing you can take the help of SD specialist you can link SD with PS and trigger the billing from PS as well. From PS point of view it goes like this.

1.       1. Create RA key with revenue based Percentage of Completion. This calculate the %ge of completion of a project based on Plan revenue Vs Actual revenue and calculate the proportionate COGS.

2.       2. Complete the configurations in OKG1 to OKG8.

3.       3. Update plan revenue and plan cost in the project (WBS Element).

4.       4. When you execute Result analysis you can see the calculation how revenue and WIP or provision is calculated. For example if Plan revenue is 1000 and plan cost is 800 you have billed for 200 and cost booked for 400. System will calculate a COGS (160) which is 20% of plan cost as only 20% revenue is recognized.

5.       5. Execute Settlement. It will transfer the excess cost to WIP (400 – 120). In your example if cost is less booked at this point of time (Say only 100 instead of 400) it will calculate a post a provision 20 (120-100) and create an expenses.

Hope this helps.

Regards

RCSanat6

[Former Member · Accepted solution]

Dear Ramesh,

Thanks for the Overview.i have configured as you suggested and i do not have the control on the delivery of the materials to the site Since i am setting up the order related billing, there is no delivery involved.

Please add some comments..

Regards,

Pratheep

[Former Member · Accepted solution]

Hi,

Normally in project sales (construction contracts for turnkey projects etc) sales order line items are sold as non stock items or just like services. Make sure that the WBS element is assigned as a cost object in the Sales Order. This will ensure that the total of sales order value is copied as plan revenue in the WBS element and the portion that is actually billed (by mile stone billing) will be posted as actual revenue,

Regards,

R C Sabat

[Former Member · Accepted solution]

Dear Ramesh,

Thanks for your kind support Ramesh

Sorry for the delay reply

one thing i cannot understand about the material movements.

if i go with milestone billing , the goods related to construction business has to move to site.how do i track this movement (PGI) , since milestone billing does not have the delivery concept!!

Regards,

Pratheep

[Former Member · Accepted solution]

Dear Pratheep,

Most of the project consturction business follow the below procedure and it is an accepted practice as per IAS 11 and AS 7 and feasible in SAP.

Actual cost and revenue recognized may not be same as billed to customer and invocie from vendors. construction materials are NOT DELIVERED to the customer but to our own proejct. The final project is delivered to the customer when completed (sold as a service item without material code). So no PGI involved in real sale.

Take the following example: Plan cost of project = 80, Plan revenue = 100 and project started in Jan.

1. At the end of January: mile stone billing completed = 30, services directly renderred by vendor at project site = 6, material issues from stock to project = 10.

FI entries will be

Customer Dr. 25

Project Revenue Cr.25 (with Cost Object as project)

Project Services Dr. 6 (with Cost Object as project)

Vendor or GR/IR Cr. 6

Project Consumption Dr. 10 (with Cost Object as project)

Inventory Cr.10.

At the month end when you execute Project Result Analysis system will calculate the revenue to be recognised as actual cost / plan cost x plan revenue (16/80 x 100) = 20. When you execute settlement the following entry will be passed.

Revenue excess billed (P/L GL account) Dr.5

Customer Excess billed (B/S GL account and not a recon account) Cr. 5

2. These last two entries gets adjusted every month. if cost incurred is less than revenue booked in proportion you will need two more GLG accounts as under

Revenue under billed (P/L GL account)

Customer under billed (B/S GL account and not a recon account)

Group the above GLs in PL and BS to net off the result and receivable.

If you have COPA, the calcualted revenue and COGS as per POC will be posted to COPA.

The above example is for COST based POC and is commonly accepted. You can also have REVENUE based POC where revenue is the base and hence either excess cost is booked to WIP or if cost is under booked it creates a provision.

There is a third method where you can tell the system to take the PROGRESS from direct entry. That is, if you tell system that the proejct is 20% complete. It calculates the revenue and cost to be recognised (post to COPA if applicable) and hence makes adjustment postings to both cost (by WIP or provision) and revenue (by excess or under billed account).

SAP has provided RA methords for all the above in OKG3.

Hope it clarifies.

Regards,

R C Sabat

[kamalkumar_biswas2]

Hi

For Milestone billing please see below link...will get information

Milestone Billing - Product Lifecycle Management - SCN Wiki