3604388 - IFRS15/ASC 606 - Revenue to be Realized Not as Expected for Sales Order Item in Foreign Currency

• The Revenue Accounting Contract functionality (IFRS15& ASC 606) is active for your company's set of books. 
• Fix-price sales order item ABC-AA is created in foreign currency FC. A POC based accrual method, such as 102-Recognize using Cost-to-Cost POC or 108-Recognize using cost-to-cost project POC, is assigned to the item (ABC-AA represents the sales order item ID). 
• Costs are incurred for the item and a POC is calculated.
• The revenue recognition run calculates a  total, realized revenue amount, based on the calculated POC, which seems not to correctly calculate the value according to the exchange rate, valid on the posting date of the revenue recognition run.

SAP Business ByDesign

1. In the Cost and Revenue work center go to the Revenue Recognition view.
2. Find run XYZ and access it's application log. 
3. In the log go to the Processed Successfully tab and select Advanced Information and then POC Based. 
4. Take note of the following values: 
   • A POC of 5% is calculated,
   • The item's net value is 1.470,00 CC (Company Currency),
   • The item's Allocated amount is 1.425,00 CC. 
   • The total Recognized Revenue amount is: 73.16 CC. But this value is neither 5% of the item's net value nor of the item's Allocated amount.

• The FC/CC exchange rate is maintained in both conversion directions, FC-CC and CC-FC. But they are not synchronized because they are based on two different time events: 
  • When a sales document item is maintained in foreign currency then the revenue recognition run converts its net value or, in case RAC is involved, its POB's allocated amount in company currency back in to transaction currency, based on the exchange rate valid on the  RAC's latest release date*.
  • This value then gets converted back into company currency based on the exchange rate, valid on the run's posting date. 
  • Note: For the calculation, the functionality derives the exchange rate based on the conversion direction: If there are conversions maintained for both directions, then the system prioritizes the exchange rate according to the conversion direction, even if there are invert exchange rates that are valid from a date closer to the RAC creation date/ RRR posting date. 

Example: 
Sales order item ABC-AA. 

Details: 

• Net value: 1.500,00 FC,
• created on 01.05.YYYY,
• Exchange rate FC-CC on 01.05.YYYY (valid from 01.05.YYYY): 0,95,
• POB XYZ-XX Allocated amount: 1.425,00 CC (1.500,00 FC x 0,95),
• Exchange rate CC-FC on 01.05.YYYY, valid from 01.02.YYYY) : 1,0477,
• POC: 5%, 
• Exchange rate FC-CC on revenue recognition run's posting date: 0,98, 

Calculation - Revenue to be realized: 

• Converting POB's allocated amount in company currency CC back to transaction currency FC: 1,425,00 CC x 1,0477= 1.492,97 FC. 
• Converting POBs allocated amount in FC back into company currency CC: 1.492,97 FC x 0,98= 1.463,11 CC
• Revenue to be realised: Allocated amount x POC= 1.463,11 CC x 5 %= 73,16 CC

Note: Even though the CC-FC exchange rate is valid from an earlier date than the FC-CC exchange rate, it is prioritized to calculate the allocated amount in company currency back into transaction currency FC.

*A RAC is released once a sales order item is released; In case an approval process is involved, the first release date is the approval date. However, as soon as new sales document item is assigned to a RAC, a new RAC version is released. The allocated amounts in company currency of all POBs will then be re-calculated based on the new release date. The revenue recognition run then uses this new date for the conversion.

It is not possible to calculate the total recognized revenue  by multiplying the current POC with the POB's allocated amount. The above conversion logic for the allocated amount (convert to transaction currency (CC-FC) and back to company currency (FC-CC) is always applied. 

Revenue Recognition, Sales Order, Currency, Exchange Rate, POC, Allocated Amount, Net Value, Total recognized revenue , KBA , SRD-FIN-COR , Cost & Revenue , Problem