(06) POC Method on Basis of Revenue Planned by Period
You can use the POC Method on Basis of Revenue Planned by Period
for the following:
Projects
Sales orders
Internal orders with revenue
You can use the POC Method on Basis of Revenue Planned by Period
to do the following:
Calculate revenue affecting net income on the basis of the cumulative planned revenue
Determine the costs affecting net income
Determine the revenue in excess of billings
Determine the capitalized costs
Determine the reserves for unrealized costs
Determine revenue surplus
Report unrealized profits
The POC method is often used in Britain and North America. Since German law does not allow unrealized profits to be reported, the POC method is used in Germany only for internal information purposes.
Prerequisites
You have planned costs, revenues, and quantities.
Choose a results analysis method in simplified Customizing for Product Cost by Sales Order
under 
Period-End Closing
Results Analysis
Valuation Method
.
Features
R(PA) = R(p) cumulative up to results analysis period
POC = R(PA) / R(p) total
C(PA) = POC * C(p) = R(PA) / R(p) * C(p)
The revenue affecting net income equals the cumulative planned revenue up to the result analysis period.
Costs affecting net income are calculated by dividing the revenue affecting net income by the total planned revenue multiplied by the total planned costs.
If actual costs are greater than or equal to calculated costs, the system creates capitalized costs.
If actual costs are less than calculated costs, the system creates reserves for unrealized costs.
If actual revenue is less than or equal to calculated revenue, the system creates revenue in excess of billings.
If actual revenue is greater than calculated revenue, the system creates a revenue surplus. The revenue surplus is basically a reserve.
Both calculated revenue and calculated costs can be settled to CO-PA.
Capitalized costs, reserves for unrealized costs, revenue in excess of billings, and revenue surplus can be transferred to FI and EC-PCA when you settle.
Example
Suppose you have planned costs of USD 120,000 for your project.
You have planned revenues for each period as follows:
Period 01 | Period 02 | Period 03 | Period 04 | |
|---|---|---|---|---|
Revenues | 50,000 | 40,000 | 60,000 | 50,000 |
Total planned revenue is USD 200,000.
Period 01
In period 01 you have actual costs of USD 20,000. You have not billed the customer. In results analysis, the system calculates the following data:
Revenue affecting net income of USD 50,000
Costs affecting net income of USD 30,000
Reserves for unrealized costs of USD 10,000
Revenue in excess of billings of USD 50,000
You then settle the following:
Calculated costs and revenues to CO-PA
Reserves for unrealized costs and revenue in excess of billings to FI and EC-PCA
The following values are reported in CO-PA:
Calculated revenue | 50,000 |
Calculated cost of sales | 30,000 |
Profit | 20,000 |
Capitalized profit is shown in the balance sheet. Definitions:
Revenue in Excess of Billings = Capitalized Costs + Capitalized Profit
In this example, capitalized costs are USD 20,000.
Capitalized profit is USD 30,000.
Because reserves of USD 10,000 are shown as a liability, the total unrealized profit capitalized is USD 20,000.
The income statement shows the following values:
Expense | Revenue |
|---|---|
Actual costs 20,000 | Revenue in excess of billings 50,000 |
Reserves for unrealized costs 10,000 | |
Profit 20,000 | |
50,000 | 50,000 |
Period 02
In period 02 actual costs increase to USD 80,000. You deliver to your customer and send him a milestone invoice for USD 100,000. The order is partially delivered and partially billed. In results analysis, the system calculates the following data:
Revenue affecting net income of USD 90,000
Costs affecting net income of USD 54,000
Capitalized costs of USD 26,000
Surplus revenue of USD 10,000
You then settle the following:
Calculated revenue and calculated costs to CO-PA
Capitalized costs and revenue surplus to FI and EC-PCA
The following values are reported in CO-PA:
Calculated revenue | 90,000 |
Calculated cost of sales | 54,000 |
Profit | 36,000 |
The income statement shows the following values:
Expense | Revenue |
|---|---|
Actual costs 80,000 | Actual revenue 100,000 |
Revenue surplus 10,000 | Capitalized costs 26,000 |
Profit 36,000 | |
126,000 | 126,000 |
Period 03
In period 03 actual costs increase to USD 90,000. You deliver a second amount to your customer and send him a second milestone billing for USD 90,000. Total revenue is USD 190,000. The invoiced quantity is 40 units. The order is partially delivered and partially billed. In results analysis, the system calculates the following data:
Revenue affecting net income of USD 150,000
Costs affecting net income in the amount of the actual costs of USD 90,000
Surplus revenue of USD 40,000
You then settle the following:
Calculated revenue and calculated costs to CO-PA
Revenue surplus to FI and EC-PCA
The following values are reported in CO-PA:
Calculated revenue | 150,000 |
Calculated cost of sales | 90,000 |
Profit | 60,000 |
The income statement shows the following values:
Expense | Revenue |
|---|---|
Actual costs 90,000 | Actual revenue 190,000 |
Revenue surplus 40,000 | |
Profit 60,000 | |
190,000 | 190,000 |
Period 04
In period 04 actual costs increase to USD 130,000. You deliver the remaining goods and send the customer the final invoice for USD 10,000. Total revenue is USD 200,000. The invoiced quantity is 20 units. The order is fully delivered and fully billed.
In results analysis, the system calculates the following data:
Costs affecting net income in the amount of the actual costs of USD 130,000
Revenue affecting net income of USD 200,000 Calculated revenue is set equal to actual revenue.
You then settle the following:
Calculated revenue and actual costs to CO-PA
The cancellation of the revenue surplus to FI and EC-PCA
The following values are reported in CO-PA:
Calculated revenue | 200,000 |
Calculated cost of sales | 130,000 |
Profit | 70,000 |
The income statement shows the following values:
Expense | Revenue |
|---|---|
Actual costs 130,000 | Actual revenue 200,000 |
Profit 70,000 | |
200,000 | 200,000 |
The project has a total profit of USD 70,000.
More Information
For detailed information on projects, see the document LO Project System
.