Agenda

RAR Overview – Why New revenue recognition and Basic

Structure

IFRS15 – Mandatory 5-Step Model for Rev Rec

Functionality of 5-Step Model
Why a New Revenue Recognition module by SAP?
As standard, SAP offered only the SD-based revenue recognition transactions VF44 and VF45.

This functionality only allows revenue recognition only

Over time For specific (isolated) SD orders / line items

Therefore, SAP realized there was a significant gap in their application:

Multiple Element Arrangements (see below) not covered

No Parallel Accounting (individual order-based – one value to FI/CO)

Cost Recognition missing

Required Disclosures as per guidelines incompletely
covered

No integration with other SAP or third party applications

leading it develop the new RAR (FI-RA, FARR) module

Basic aspects of the New SAP RAR
module

The module strictly follows the 5-step-model required in the

new IFRS/GAAP guidelines

This may not be directly apparent, as multiple steps are

performed “in one go” behind the scenes based on rules
settings
This is the case even when using the module to calculate
and post values as per approaches used prior to IFRS15
IFRS15 – Mandatory 5 step Model for Revenue recognition
Affecting All Revenue Contracts.
• Final standard published May 2014

• Effective date latest 2018* (early adoption

possible for IFRS preparers)
1
• New single principled 5-step model (SSP)
for recognizing revenue

• Disclosure changes include both

quantitative and qualitative
information about the amount,
timing, and uncertainty of revenue
from contracts with customers and
Manage fulfillment of performance
the significant judgments used. obligations

• All companies (public and private) will be

required to prepare their revenue
contracts now to comply with this new Make revenue postings
regulation by 2018/19*
Functionality Corresponding to 5-Step Model

1: Identify the Contract with a customer

 An economic agreement or “deal with the customer is represented as

a single Revenue Accounting , RA contract
 Revenue Accounting contract can correspond to one or multiple
operational documents from back-end operational systems (at
McAfee: SD)
 RA Contract is the container for Performance Obligations, POBs.
Functionality Corresponding to 5-Step Model

2: Identify the separate performance

obligations, POBs, in the contract

 Performance Obligation is the level where the Standalone Selling Price (SSP) is
defined, where the revenue is allocated, and the fulfillment (% of completion)
determined
 Usually, a POB corresponds to an item of an operational contract, but it can also be a
combination of several items, e.g., from a sales BoM (bill of material; or an implicit
obligation, e.g., customer’s right for software upgrade)
 At McAfee, often, multiple (“non-distinct”) contract items are merged into a compound
POB
 McAfee also separates out revenue into a new POB (material rights)
Functionality Corresponding to 5-Step Model

3: Allocate Transaction Price

 Determine the total price by aggregating the

pricing conditions passed from SD, and then
allocate the total price among the performance
obligations
 Some amounts per condition types are not added
to the transaction price and not allocated
- Non-pricing condition types, such as costing
condition types
- Statistical condition types
 Allocation effect indicates how much the allocated
prices differ from their original prices.
Functionality Corresponding to 5-Step Model

4: Full-fillment of POBs

Manual
POC’s  Recognize revenue for performance obligations as
Here’s all the they are fulfilled.
Invoice Transaction layer  Revenue Accounting manages the fulfillment
activity as it’s
funneled into SAP statuses of performance obligations on its own.
Revenue When a performance obligation qualifies as fulfilled,
Accounting
Delivery it is tracked as fulfilled in Revenue Accounting.
 Revenue Accounting supports various calculations of
performance obligation fulfillment.
 On the occurrence of a certain event
 Over a period of time
 Over a period of time that starts with an event
 Manually managed
Functionality Corresponding to 5-Step Model

5: Make revenue postings

Contract cost allocation
 Sales order with customer 101119 with two line items 10 and 20
Contract cost allocation
 Sales order 42705 of 1001with customer 101119 with two line items 10 and 20
 Line item 10 contractual price -120000—Billing plan 10000 per month
 Line itme 20 contractual price -240000—Billing plan 20000 per month


Contract cost allocation
 Sales order 42705 of 1001 with customer 101119 with two line items 10 and 20
 Line item 10 contractual price -120000—Billing plan 10000 per month
 Line itme 20 contractual price -240000—Billing plan 20000 per month


 CALCULATION OF CONTRACT ALLOCATION AMOUNT:

Standalone price updated at Contractual

POB level manually in price/Transaction Calculated Allocated
  Revenue contract price SSP percentage amount/price

Line item 10 500 120000 41.6666667 150000

line item 20 700 240000 58.3333333 210000

Total 1200 360000 100 360000

ALLOCATED CONTRACT AMOUNT FORMULA AND STAND ALONE SELLING PRICE FORMULA

The Transaction Price is allocated to POB of a contract on a relative SSP basis

Stand alone price updated in POB

Stand Alone Price percentage level/Total Stand alone price *100  

For Item 10 500/1200*100 41.67

     

Allocated amount Total Contractual price*SSP  

For Item 10 360000*41.67/100 150000

PRICE ALLOCATION IN REVENUE
CONTRACT
PRICE ALLOCATION IN REVENUE
CONTRACT
Revenue posting Gl account
410090 is meant for showing the allocation effect
Thank You