Revenue Recognition for Deferred Revenue

[atif_farooq]

Hi:

We are using lease out process in REFX module to manage lease related contracts. I am facing an issue with RERAALCN output. I would elaborate my requirement with an example. We have a lease contract for lease rental is booked in REFX in advance for 3 years and all revenue is credited to a deferred revenue account. Now from the amount posted to this deferred revenue amount we want to recognize revenue every month using Accruals/Deferrals feature in REFX. I have set up customizing as per OSS 829676 , relevant flow types have been assigned accruals/deferral types. When i am running first posting system is picking exactly same which it should for the first month revenue recognition but when RERAALCN is executed in second month system reversed the entry posted in previous month and do not recognize anything from that month.. I do not want entry to be reversed , i need monthly amortization of deferred revenue posted earlier. Accrual type which is called is ANRVCN. Furthermore in second month system wants to post an inception entry  with type TRRVCN which i do not need, i know it can be avoided by setting up only periodic posting for this accrual type but this setting would deviate from the what the settings have been described in OSS note. Please guide me how to accomplish the task. I am attaching screen shot of what is actually going wrong.

Thanks

[amarendar · Accepted solution]

Hi Atif,

I am pasting important configuration steps which I have set up for 1 condition (100, Flow type Z100). Compare your configuration and make necessary changes. For me it's working perfectly fine.

Run periodic posting followed by RERAALCN. From next month only RERAALCN.

Regards,

Amar

[atif_farooq · Accepted solution]

Thank you Kumar. We are following IAS 13 to accrue average lease rental for the duration of the lease and this is then booked in the deferred revenue beside posting to some IAS account which has a nil balance at the end of lease period with periodic posting done. I have somehow managed to the post the entries correctly for the first year but when i am posting in nexy fiscal year to amortize deferred revenue to realized one i am getting an error No data found in table ACEDSOH that corresponds to the selection Message no. ACE702 perhaps accrual data needs to be carried forward to next year but i could not find any transaction in REFX lease to carry forward accruals to next fiscal year. Can you please help me on it.

Thanks

[tedkwon · Accepted solution]

Hi Atif,

Below is Carryforward for RE-FX Accruals;

Menu Path:  Flexible Real Estate Management > Tools > Fiscal Year Change

Transaction Code: REEXACRCARRYFORWARD

- Balance Carryforward for RE Accruals

Regards, Ted

[amarendar · Accepted solution]

Hi Atif,

I agree with Ted, this is an year end activity that needs to be carried out for accrual/deferral entry.

Along with this, you need to make one more settings.

RECACUST-->Flexible Real Estate Management--> Accounting--> Accrual/Deferral--> Accrual/Deferral--> Basic Settings--> Open Fiscal Year for Accrual Postings.

In this step, you need to maintain completed Fiscal year, for example, 2014 is over, so here it should be 2014.

This certainly will resolve your issues.

Regards,

Amar

[atif_farooq · Accepted solution]

Hi:

Its done now. For the next year i am able to amortize deferred revenue but for this new year there is a little twist. Lease rental is posted in to two different to recognize current and no current part of lease rental in differing accounts. E.g today i create a lease agreement for two years, when i do periodic posting system splits lease rental between current years and future years based on the configuration i have made. Now when i execute RERAALCN for 2016 January (FY  January to December) i want system to transfer the whole amount from non current account unearned revenue account to the current unearned account for FY 2016 and then start amortizing to the recognizing revenue. Right now system is posting on the same logic which it was doing for the last year, its not taking care of the account given in Alternate fiscal year posting to which non current part of lease rental was posted during periodic posting.

Thanks

[atif_farooq · Accepted solution]

Hello:

I got some hint but perhaps i am not hitting the right point. There is a concept of derived accrual type with method year shift in REFX customizing. I have created a new accrual type and set it as derived accrual type and in customizing for derived accrual type i have assigned it a referenced accrual type to which values are already being posted but when i am simulating RERAALCN i am still getting the same accrual type for the next fiscal year accrual amortization postings.

Thanks

[amarendar · Accepted solution]

Hi Atif,

When I implemented IAS 13, I too used the derived accrual types as system was not transferring the revenue.

Even your termination of contract scenario will not work, for that also, I did a small enhancement.

Let me dig in my documents, if I find something, will share it with you.

Regards

Amar

[atif_farooq · Accepted solution]

Ok thanks i will wait. So you also posted future years revenue in to non current unearned revenue and then later on at year end were you able to automatically transfer the lump sum amount from non current unearned revenue account to the current unearned revenue and then started to amortize the same? Please do let me know.

Thanks

[amarendar · Accepted solution]

Hi Atif,

Couldn't find the document, let me try to explain it using accounting entries at various stages:

Accounts used:

1. Customer A/c

2. Default Revenue A/c

3. IAS B/S account

4. IAS Revenue Account

5. Accrued Revenue A/c

6. Clearing Account

Scenario: Contract term is for 3 years, 1st year rent is 1000 USD per month, 2nd Year 2000 USD pm and 3rd Year 3000 USD pm. So, in this case, your SL rent will be 2000 USD pm.

Posting Frequency is quarterly, it means we get rent for 3 months (3000 USD) and then every month we accrue it using accrual transaction code.

Solution:

Step 1: At the time of periodic posting (RERAPP), system will make below entries:

Actual Posting (Posting on Contract)

1 Customer A/C --- Dr                                    3000 USD

1 Default Revenue A/c                                   3000 USD

2 IAS B/S Account ---- DR                              2000 USD [SL condition value]

2 IAS Revenue Account                                  2000 USD [SL Condition Value]

Transfer Posting ( Transfer posting on Rental object object)

3 Default Revenue -- Dr                                 3000 USD

3 IAS B/S Account                                         3000 USD

4 Clearing A/c  Dr.                                          2000 USD

4 Clearing A/c                                                 2000 USD

* All 4 entries will happen at the time of periodic posting

Step 2: At the time of deferral entry (RERAALCN)

5 IAS B/S Account --- Dr                          3000 USD [ This entry is the inception (I)entry]

5 Accrued Revenue A/c                           3000 USD [Inception entry]

6 Accrued Revenue A/c                          1000 USD [Periodic Posting entry (P) entry]

6 IAS B/S Account                                  1000 USD [ Periodic Posting (P) entry]

7 IAS Revenue A/C                                 1000 USD [Derived entry, amount derived from 6th entry]

7 Default revenue A/C                             1000 USD [Derived entry, amount derived from 6th entry]

** 7th entry is the result of derived accrual type, this accrual type derives it value with reference to 6th Entry. This you have to define at the time of creating derived accrual type.

*** The number 1 to 7 above represents the sequence of accounting entry as it happens in system.

If you are able to manage this accounting entry in the system, your IAS 13 reporting will fall in place.

Regards,

Amar

[atif_farooq · Accepted solution]

Hi Amare:

Sorry for being late with the reply. Actually we are following a different pattern of entries. I will give you an example as under

Scenario: Contract term is for 2 years with payment form as Advance in Frequency, 1st year rent is 12000 AED per month, 2nd Year 24000 AED PM So, in this case, your SL rent will be 1500 AED pm.

Posting Frequency is 6 so customer receivables will generated for every 6 months. We have following accounts

Unearned Revenue-Current (B/S)

Unearned Revenue-Non Current  (B/S)

IAS Clearing A/C B/S

Revenue (P&L)

For a contracting starting 01.10.2015 and ending 30.09.2017 with above terms  when periodic posting is done following entries gets posted

Customer Dr 6000 (Oct 15 Mar 16)

Customer Dr 6000 (Apr 16 Sep 16)

Customer Dr 12000 (Oct 16 to Mar 17)

Customer Dr 12000 (Apr 17 to Sept 17)

Unearned Revenue-Current Cr 1500 (Oct 15)

Unearned Revenue-Current Cr 1500 (Nov 15)

Unearned Revenue-Current Cr 1500 (Dec 15)

Unearned Revenue-Non Current Cr 1500 (Jan 16 )

and so on till Sept 17 THI

IAS Clearing A/C will be debited by Avg monthly IAS rental and credited by an amount equal to actual receivables and will have 0 balance.

From above posting we have segregated current and non current portion of lease rental .

Now from accrual/deferral run we are posting following

Unearned Revenue Current Dr

Revenue A.C Cr

but here we are stuck with a scenario when year 2015 ends we have to bring an amount equal to 2016 avg rental from Unearned revenue Non current to Unearned revenue current account and only then we want to start amortizing it through accrual/deferral run starting January 2016.

Also we want to know what will happen if a contract is terminated prematurely, how will system behave to reverse the excess revenue which was booked through accrual runs.

Thanks

[amarendar]

I Am on vacation at the moment, will get back to you once i am back