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The International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) have jointly issued the new revenue standards, IFRS 15/ASC 606 Revenue from Contracts with Customers. They become effective for annual periods beginning on or after January, 1, 2018.

In a small blog-series, I would like to demo the process that we provide in SAP S/4HANA Cloud 1711 to support the requirements along the 5-step-model:

* This blog: Demo of Revenue recognition for sell from stock with delivery-based billing
* Next blog: Project based services scenario

A company sells printers and cartridges. Recently it created a contract with a customer about a package containing 1 printer and 1 cartridge. The contract price of the printer is 80 EUR and for the cartridge 20 EUR. If printer and cartridge would be sold independently the price for the printer would be 100 EUR and for the cartridge 50 EUR. The delivery of printer and cartridge happens at the same time. After delivery, the invoice for both items is send to the customer.

Creation of Sales Order:

Step 1: Identify the contracts with the customers (IFRS 15.9ff) – what qualifies it as a contract?

For many entities step 1 will be relatively straightforward. The key point is to determine when a contract is existing. The SAP system automatically identifies each sales order as one revenue recognition contract.

Step 2: Identify the separate performance obligations (PO) (IFRS 15.22ff) – how to identify those deliverables that were accounted performance obligations?

For standard sales orders with multiple line items, the SAP system determines each line item as a distinct performance obligation.

Step 3: Determine the transaction price (IFRS 15.47ff) – how to measure the total revenue arising under a contract? IFRS 15 typically bases revenue on the amount to which an entity is entitled.

The SAP system identifies the net value of the sales order as the transaction price.

Step 4: Allocate the transaction price to the separate POs (IFRS 15.73ff) – how to allocate the transaction price between the different performance obligations identified in step 2?

The standalone selling price (SSP) or estimated standalone selling price (ESSP) can be maintained or uploaded in the SAP system. For each performance obligation (i.e., each item in the sale order), the SSP or ESSP appears automatically as condition type in the pricing procedure.

SSP in the SAP sales order for item 10 – Printer

When a sales order is saved in the system, the transaction price is allocated to each performance obligation automatically based on the relative SSP of each distinct item. The App “Allocated Revenue” shows the allocated amounts for each performance obligation (POB) based on the relative standalone selling price of each distinct item.

Call App ‘Allocated Revenue’ in the Fiori Launchpad

App ‘Allocated Revenue’ for the created sales order

Step 5: Recognize revenue when the entity satisfied a PO (IFRS 15.31ff)

The final step is to determine for each performance obligation, when revenue should be recognized. Revenue is recognized when the performance obligation is fulfilled – that is when the goods issues are posted.

Posting Goods Issue:

The revenue recognition entry created by the system records the contract asset and is based on the ‘allocated revenue’.

Revenue recognition document created with Goods Issue posting for both items printer and cartridge

The performance obligation is fulfilled. The system records costs and recognizes revenue base on allocated amounts.

The App ‘Revenue Recognition (Event-Based)-Sales Orders’ shows contract balances, contract assets and contract liabilities in the balance sheet, as well as the recognized revenue and costs for each performance obligation for every sales order in the income statement.

Call the App ‘Revenue Recognition (Event-Based)-Sales Orders’ in the Fiori Launchpad

The App ‘Revenue Recognition (Event-Based)-Sales Orders’ item 10 printer, after Goods Issue posting

Billing:

With the billing contract liability is recorded based on transaction price.

Revenue recognition document created with billing for both items printer and cartridge

The App “Revenue Recognition (Event-Based)-Sales Orders” shows updated account balances in the income statement and balance sheet after billing.

The App “Revenue Recognition (Event-Based)-Sales Orders” item 10 printer, after billing

Period end run:

With the period end run netting of contract asset and contract liability happens for sales order. In our example the sales order is completely delivered and billed therefore the balance of each sales order item is the difference between the transaction price and the allocated revenue. We call the App ‘Run Revenue Recognition – Sales Orders’ from Fiori Launchpad.

The App “Revenue Recognition (Event-Based)-Sales Orders” shows the updated amounts on contract assets and contract liabilities in the balance sheet, after period end run has been conducted.

Remaining balance after netting on contract liability for sales order item 10

In my next blog, I will demo a customer project scenario with fixed price services.

For more information on SAP S/4HANA Cloud, check out the following links:

* Sven Denecken’s SAP S/4HANA Cloud 1711 Release Blog
* SAP S/4HANA Cloud release info: http://www.sap.com/s4-cloudrelease
* Best practices for SAP S/4HANA Cloud here
* openSAP course ‘How to Best Leverage SAP S/4HANA Cloud for Your Company’
* Learn more about intelligent ERP S/4HANA Cloud

Follow us via @SAP and #S4HANA, or myself via LinkedIn http://bit.ly/2ErXXxj #SAP #SAPCloud #AI

ICYMI: There is a growing need for enterprises and application developers to have increased access to relevant contact details. However, there is also a huge need for the users of software and applications to feel as if their privacy is protected and their information won’t be compromised. Research by Gigya found that 68 percent of people don’t trust brands to handle their personal information appropriately.

Contact APIs provide a secure way for organizations to retrieve and modify user contact details programmatically without compromising the privacy of such users. Below you’ll find out about several contact APIs and what you can do with them. https://goo.gl/NnTMzy #DataIntegration #ML

Over the last year, all the new software components delivered by our software engineering teams have exposed HTTP standard REST APIs. This choice gave us a lot of benefits in terms of modularization and cooperation from an architectural point of view. But, we also had to learn new tools and practices in order to share documentation, design software solutions, and manage the evolution of our services.

We write private APIs (no need to deal with a public API portals or API economies). We also recently decided to adopt an open source solution based on Swagger tooling (I think there’s no need to introduce it or justify the choice in this post, there’s a lot of very well written stuff out there). https://goo.gl/hi4iFX #DataIntegration #ML

This year, I had the pleasure to be at the International SAP Conference for Utilities. I met many nice and interesting SAP customers, prospects, partners and colleagues who all have one thing in common – the passion for the utilities or oil and gas industry. If you work in this industry for a while you will notice that’s like a big family.

Next year’s conference will take place once again in the Lisbon, Portugal’s beautiful capital.

Because of the success of this event at this very nice location, we decided to held the event once again at this great place in South Europe.

The motto of next year’s conference is “Reaching New Heights in a Digital World” and the event will take place from April 17-19, 2018.

The first edition of the agenda is now available which shows you what to expect from this international event.

Tracks, live solution demonstrations and interactive session focusing on Cloud and Data Platforms, SAP Leonardo, Machine Learning, Bockchain, Digital Transformation and Artificial Intelligence. We will have high-profile speakers, such as Cyber Security Specialist Patrick Miller, and Stephan Parthier, Senior VP Corporate IT at Uniper. Customers, partners and SAP employees will share best practices and you will have the opportunity to collaborate wtih others from the Utilities business.

On the first day, we will offer half day and full day workshops to deep dive into topics such as SAP S/4HANA, SAP Cloud innovations, Cloud for Energy and many more. The registration for workshop is already possible.

Please take a look at the event webpage to learn more about this conference.

Last year, I had the chance to extend my stay and spend three extra days in Lisbon. We visited great places, enjoyed the delicious food, the sunshine and the nightlife. I will never forget the city tour on a segway. By driving through the narrow streets of Lisbon, I enjoyed the spirit of Lisbon and experienced lots of great places of this charming town.

 
 

You will probably meet me at the information desk. If you want to, you can subscribe for our Utilities newsletter. I am looking forward to meeting you in Lisbon!

See you soon,

Nicole

  http://bit.ly/2DaWdsS #SAP #SAPCloud #AI