Spreading
Spreading determines how the entire fulfillment of a performance obligation is distributed over the specified period of time. Revenue Accounting provides several ways of determining the spreading of a performance obligation.
Deferral Methods
Using deferral methods is one of the ways of determining how the fulfillment of a performance obligation is spread over a period of time. In the standard system, the following deferral methods are available:
Deferral Method | Description |
|---|---|
Linear Distribution, Day-Specific, 365/366 Basis | The fulfillment of the performance obligation is evenly distributed over the number of days in the duration. Therefore, the revenue or cost recognized for each accounting period is in proportion to the number of days that fall in that accounting period. When you use this deferral method, the total number of days is calculated at 365 or 366 days per year, depending on whether it is a leap year. |
Linear Distribution, Day-Specific, 360 Basis | The fulfillment of the performance obligation is evenly distributed over the number of days in the duration. Therefore, the revenue or cost recognized for each accounting period is in proportion to the number of days that fall in that accounting period. When you use this deferral method, the total number of days is calculated at 360 days per year. |
Linear Distribution, Day-Specific, 360 Basis (with rounding adjustment) | The calculation of fulfillment is the same as the |
Recognition in First Period | The fulfillment of the performance obligation is distributed to the first accounting period of the duration. |
Recognition in End Period | The fulfillment of the performance obligation is distributed to the last accounting period of the duration. |
Linear Distribution, Period-Specific | The fulfillment of the performance obligation is distributed over the number of accounting periods in the duration, regardless of the number of days that fall in each period. If the duration is not aligned to periods, and if the part that falls in the last period does not fill up the entire period, no part of the fulfillment is distributed to that last period. |
Example scenario:
Your company sells to a customer a unit of equipment and a maintenance service that is good for three months of the delivery of the equipment. Your company delivers the equipment on January 5, 2014. You want the performance obligation for the equipment to be fulfilled immediately on delivery, and want the performance obligation for the maintenance service to be fulfilled over three months thereafter.
In this scenario, different deferral methods cause the performance obligation for the maintenance service to be fulfilled as follows:
Deferral Method | Description |
|---|---|
Linear Distribution, Day-Specific, 365/366 Basis | Fulfilled for period 1 (Jan 5 – Jan 31, 27 days): 27/90 Fulfilled for period 2 (Feb 1 – Feb 28, 28 days): 28/90 Fulfilled for period 3 (Mar 1 – Mar 31, 31 days): 31/90 Fulfilled for period 4 (Apr 1 – Apr 4, 4 days): 4/90 Note: The total number of days is 90 days (27+28+31+4). |
Linear Distribution, Day-Specific, 360 Basis | Fulfilled for period 1 (Jan 5 – Jan 31, 26 days): 26/90 Fulfilled for period 2 (Feb 1 – Feb 28, 30 days): 30/90 Fulfilled for period 3 (Mar 1 – Mar 31, 30 days): 30/90 Fulfilled for period 4 (Apr 1 – Apr 4, 4 days): 4/90 Note: The total number of days is 90 days (26 + 30 +30 + 4). The number of days in the first period is calculated as 30 minus the number of days not in the period (4 days in this example), down to 0. The number of days in the last period is calculated as the number of days that fall in that period (4 days in this example), up to 30. |
Linear Distribution, Day-Specific, 360 Basis (with rounding adjustment) | The calculation of fulfillment is the same as the |
Recognition in First Period | Fulfilled for period 1 (Jan 5 – Jan 31): 100% Fulfilled for period 2 (Feb 1 – Feb 28): 0 Fulfilled for period 3 (Mar 1 – Mar 31): 0 Fulfilled for period 4 (Apr 1 – Apr 4): 0 |
Recognition in End Period | Fulfilled for period 1 (Jan 5 – Jan 31): 0 Fulfilled for period 2 (Feb 1 – Feb 28): 0 Fulfilled for period 3 (Mar 1 – Mar 31): 0 Fulfilled for period 4 (Apr 1 – Apr 4): 100% |
Linear Distribution, Period-Specific | Fulfilled for period 1 (Jan 5 – Jan 31): 1/3 Fulfilled for period 2 (Feb 1 – Feb 28): 1/3 Fulfilled for period 3 (Mar 1 – Mar 31): 1/3 Fulfilled for period 4 (Apr 1 – Apr 4): 0 Note: The part that falls in the last period (period 4) does not fill up the entire period. |
Note: This example assumes that each accounting period spans from the first day to the last day of each month.
Customized Deferral Methods
You may need to spread the fulfillment in a way that is not addressed by any of the default deferral methods. The following Business Add-In (BAdI) allows you to develop your own deferral methods: 
Financial Accounting (New)
Revenue Accounting
Revenue Accounting Contracts
Business Add-Ins
Manual Spreading
In addition, Revenue Accounting allows you to manually arrange the fulfillment over the specified duration. In this operation, you can specify how much revenue is distributed to each accounting period within the duration. The system provides you with the spreading applied by default, and your values override the existing spreading arrangement.
The number of periods to which you allocate the time-based revenue depends on the deferral method that is assigned to the performance obligation.
For example, your performance obligation is to be fulfilled over a 3-month duration that runs across 4 accounting periods. The total revenue of that performance obligation amounts to EUR 500. If the deferral method is “Linear Distribution, Day-Specific, 360 Basis”, the system allows you to specify how this amount is split among the 4 accounting periods. If the deferral method is Linear Distribution, Period-Specific, the system allows you to specify how this amount is split among the first 3 accounting periods.