(02) Revenue-Based Method Without Profit Realization
Use
You can use the
Revenue-Based Method Without Profit Realization
for:
Sales orders
Projects
Internal orders with revenue, service orders with revenue, maintenance orders with revenue
Revenue-based results analysis without profit realization does not calculate a profit as long as the actual revenue is less than the planned cost.
Revenue-based results analysis without profit realization allows you to:
Create reserves for unrealized costs
Create reserves for imminent losses
Use milestone billing
The system only reports a profit if the profit has been realized on the market.
Revenue-based results analysis without profit realization allows you to follow conservative balance sheet guidelines.
Prerequisites
You have planned costs and revenues.
Choose a results analysis method in simplified Customizing for
Product Cost by Sales Order
under
Period-End Closing
Results Analysis
Valuation Method
.
Features
POC = R(a) / R(p)
R(PA) = R(a)
If R(a) < C(p) then C(PA) = R(a)
If C(p) <= R(a) < R(p) then C(PA) = C(p)
If R(a) >= R(p) then C(PA) = POC * C(p) = R(a) / R(p) * C(p)
The revenue affecting net income equals the actual revenue. It can be transferred to CO-PA together with the cost of sales.
If the actual costs are greater than the costs affecting net income, the system creates capitalized costs.
If the actual costs are less than the costs affecting net income, the system creates reserves for unrealized costs.
Inventory values and reserves for unrealized costs can be transferred to FI and EC-PCA when you settle.
The cost of sales is zero as long as your actual revenue is zero. The capitalized costs are then equal to the actual costs. Earnings are only calculated when revenues have been received.
If actual revenue is less than planned cost, the system sets the costs affecting net income to be the same as the revenue affecting net income in the amount of the actual revenue. In this case no profit is calculated. Capitalized costs and reserves can be reported.
Example
You have planned revenues of USD 200,000 and costs of USD 120,000 for your sales order.
Period 01
In period 01 you have actual costs of USD 20,000 but no revenues. In results analysis, the system calculates the following data:
Capitalized costs in the amount of the actual costs (USD 20,000)
Revenue of USD 0
Cost of sales of USD 0
You then settle the following:
The capitalized costs to FI and EC-PCA
No cost of sales and no revenues to CO-PA
The following values are reported in CO-PA:
Profitability Analysis
Revenues |
0 |
Cost of sales |
0 |
Profit |
0 |
The income statement shows the following values:
Income Statement
Expense |
Revenue |
Actual costs 20,000 |
Inventory increase capitalized costs 20,000 |
20,000 |
20,000 |
Period 02
In period 02 the actual costs increase by USD 60,000 and now total 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:
Cost of sales of USD 100,000
Since the actual revenue is less than the planned costs, the cost of sales is equal to the actual revenue.
Reserves for unrealized costs of USD 20,000 using the formula: Reserves for Unrealized Costs = Costs Affecting Net Income – Actual Costs if Actual Costs < Costs Affecting Net Income. The capitalized costs are canceled.
Revenues of USD 100,000
You then settle the following:
The cost of sales to CO-PA
The revenues to CO-PA
The reserves for unrealized costs and the cancellation of the capitalized costs to FI and EC-PCA
The following values are reported in CO-PA:
Profitability Analysis
Revenues |
100,000 |
Cost of sales |
100,000 |
Profit |
0 |
The income statement shows the following values:
Income Statement
Expense |
Revenue |
Actual costs 80,000 |
Actual revenue 100,000 |
Reserves for unrealized costs 20,000 |
|
Profit 0 |
|
100,000 |
100,000 |
In contrast to the revenue-based method with profit realization , this profit has not been realized on the market. If you are using the revenue-based method with profit realization, the system reports an income surplus in Financial Accounting of USD 40,000 at this point.
Period 03
In period 03 the actual costs increase by USD 10,000 and now total USD 90,000. You deliver a second amount to your customer and send him a second milestone billing for USD 90,000. The total revenue is USD 190,000. The order is partially delivered and partially billed. In results analysis, the system calculates the following data:
Cost of sales of USD 120,000 using the formula: Costs Affecting Net Income = Planned Costs
Reserves for unrealized costs of USD 30,000 using the formula: Reserves for Unrealized Costs = Costs Affecting Net Income – Actual Costs if Actual Costs < Costs Affecting Net Income
Revenue affecting net income of USD 190,000
You then settle the following:
The change in the cost of sales to CO-PA
The change in the revenues to CO-PA
The change in the reserves for unrealized costs to FI and EC-PCA
The following values are reported in CO-PA:
Profitability Analysis
Revenues |
190,000 |
Cost of sales |
120,000 |
Profit |
70,000 |
The income statement shows the following values:
Income Statement
Expense |
Revenue |
Actual costs 90,000 |
Actual revenue 190,000 |
Reserves for unrealized costs 30,000 |
|
Profit 70,000 |
|
190,000 |
190,000 |
In contrast to period 02, in period 03 a profit is reported. This is because the actual revenues now exceed the planned costs.
Period 04
In period 04 the actual costs increase by USD 40,000 and now total USD 130,000. You deliver the remaining goods and send the customer the final invoice for USD 10,000. The total revenue is USD 200,000. The order is now fully delivered and fully invoiced.
In results analysis, the system calculates the following:
Cost of sales of USD 130,000
Since the actual costs exceed the planned costs, the system sets the cost of sales to the value of the actual costs.
No reserves for unrealized costs. The existing reserves are canceled.
Revenues of USD 200,000
You then settle the following:
The change in the cost of sales to CO-PA
The change in the revenues to CO-PA
The cancellation of the reserves to FI and EC-PCA
The following values are reported in CO-PA:
Profitability Analysis
Revenues |
200,000 |
Cost of sales |
130,000 |
Profit |
70,000 |
The income statement shows the following values:
Income Statement
Expense |
Revenue |
Actual costs 130,000 |
Actual revenue 200,000 |
Profit 70,000 |
|
200,000 |
200,000 |
The order has a total profit of USD 70,000.