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Example documentationExample: Acquisition Contract with Reserves

 

You want to represent license acquisition contracts in which you pay a licensor royalties for the exploitation of the rights transferred to an IP. You want to retain some of the royalties due as reserves, and first pay these one or more settlement periods later.

Reserves created during a settlement period must be released during a subsequent settlement period, which increases the royalties to be paid with a time offset. In addition, remaining reserves must be released by the final settlement of the contract at the latest, with any remaining amounts paid out (or any surplus royalties paid in spite of reserves returned).

Different business scenarios are required to create and release reserves according to the business model used. SAP supports the following mechanisms:

  • Reserves with distributed release

  • Reserves with rolling release

Representation in the License Acquisition Contract — Reserves with Distributed Release

You create a license acquisition contract to purchase rights to the IP associated with a book. You intend to publish and sell the book and agree that an author is to receive 10% of all book revenues. The contract start date is January 1, and settlement is done on a monthly basis. You agree on a distributed reserve. More specifically, during the 1st settlement period, 40% of the payments due are to be held back as a reserve, which is to be released in the subsequent settlement periods at a rate of 25%.

Maintain rights and variable royalties

Create an item with item category IEM2 (IPM acquisition rights and royalties item with difference calculation) or a similar item category that you define (in SAP Customizing).

  • Define the rights dimensions for the IP within this item.

  • Define variable royalty rates (price agreements) within this item. In this case, enter 10% with condition type 17PO (percentage license fee OR) or a similar condition type that you define (in SAP Customizing).

  • Maintain the reserve parameters:

    - Reserve creation end (IPM_RSVCRETO): Jan. 31.

    - Reserve release start (IPM_RSVRELFR): Feb. 1

    - Reserve release end (IPM_RSVRELTO): Leave empty

    Note Note

    The system’s use of the end of the validity period as the reserve release end is a default setting for all types of reserves. During rolling release, the system releases all remaining reserves with the BRI whose period contains the reserve release end. (A corresponding logic for distributed release has not yet been implemented. Price agreements, reserve dates and the billing plan must be aligned with each other here so that the reserve is released completely at the end of the defined period.)

    End of the note.

  • Reserve rate: 40

  • Reserve release rate: 25

Result

The licensor's share of the exploitation-dependent license revenues is $1000 for the January. The system creates a reserve of $400 for January and the author is paid $600. Between February and June the licensor’s share is $2000, $2500, $1500, $3000 and $3500 respectively. Between February and May, 25% of the reserves are released, so that the author receives a payment of $2100, $2600, $1600 and $3100 respectively. In June the reserve is already completely released.

Representation in the License Acquisition Contract — Rolling reserve creation over the entire contract validity period

Alternatively, you can maintain a rolling reserve. The reserve creation takes place as defined by the Reserve Creation Start and Reserve Creation End, Reserve release takes place with a defined time offset. You define this time offset with the release period and release unit. The reserve release rate in this case is 100%.