SAP RAR Optimized Contract Management: Intercompany Billing Based Fulfillment Business Use Case

In this blog post I will be focusing on SAP Revenue accounting and reporting (RAR) Event-Based Fulfillment Type – Intercompany Billing of Performance Obligations. A performance obligation (POB) can be fulfilled when a specified event happens which is Event-Based Fulfillment. A performance obligation can be fulfilled over a period of time which is Time-Based Fulfillment.

Performance Obligation Types

The goods or services that are promised in the contract represent a single performance obligation. SAP RAR has performance obligation types, and this represents data which addresses queries on fulfillment type; if it is Time or Event Based, and also specifies about the duration.

IMG Path – Financial Accounting > Revenue Accounting > Revenue Accounting Contracts > Define Performance Obligation Types

Fulfillment Event Types 

On the occurrence of an event, Performance obligations can be fulfilled. They can also be fulfilled over a period of time, starting from the occurrence of an event.

IMG Path – Financial Accounting > Revenue Accounting > Revenue Accounting Contracts > Define Fulfilment Event Types

Intercompany Billing Based and Time Based

One can fulfill performance obligations (POBs) when Intercompany Billing gets generated.

Time-based fulfillments for performance obligations involve subscriptions, for example contracts, where services are provided on a regular basis for the duration of the contract.

Use Case

Company places a sales order with customer (17100003) for 35,500 USD for providing Material (EWMS4-50) together with Consumable Spare Parts (TG12) and Warranty (SM001) of during contract validity from 1^st October 2022 to 31^st December 2022 (3 months).

Calculation Check Points:

• Allocated Amount = Standalone Selling Price of Item X Complete Contractual Price / (Sum of all Stand-Alone Selling Price (SSP))
• Allocation Effect = Allocated Amount – Contractual Price of Item

Step 1: Creation of Sales Order

Firstly, we proceed with Sales Order creation where condition type PR00 gets updated, Standalone Sales Price (SSP) will be manually updated at every item level for testing but without SSP system will not save the Sales Order.

Step 2: Process Revenue Accounting Item’s related to Sales Order                      (Step 1)

For many entities, Step 1 will be straight forward; the key point is to determine when a contract exists. Using Tcode FARR_RAI_MON or Fiori App Manage Revenue Accounting Items, all sales order items will be showcase initially as processable RAI’s. Then all such processable RAI’s are transferred using default sender integration component as SD with RAI class as SD01 with source document item type as SDOI to RAR.

View RAR Contract and Performance Obligations (POB’s)                                    (Step 2)

Once RAI’s are processed successfully, in 1^st step system will automatically create one Revenue Recognition Contract 1000000501 against the Sales Order and also create Performance Obligations 2000005001/02/03 for each Sales Order Items.

RAR Contract – Price Allocation                                                                           (Step 3, 4)

As per IFRS 15 prerequisite, RAR component will automatically perform the allocation amount and allocation effect against each Performance Obligation. This determines transaction price and allocate to the separate POB’s level.

Step 3: SD – Outbound Delivery and Post Goods Issue

With reference to Sales Order, Outbound Delivery and PGI done for material relevant order items.

Step 4: Revenue Accounting Item’s related to PGI

In transaction FARR_RAI_MON or Fiori App Manage Revenue Accounting Items, all fulfillment items related to order will be showcase initially as processable RAI’s. Then all such processable RAI’s are transferred using default sender integration component as SD with RAI class as SD02 with source document item type as SDFI to RAR.

Step 5: Customer Billing

Customer billing has been posted.

Step 6: Revenue Accounting Item’s related to Customer Invoice

In transaction FARR_RAI_MON or Fiori App Manage Revenue Accounting Items, All Invoice Items related to billing will be showcase initially as processable RAI’s. Then all such processable RAI’s are transferred using default sender integration component as SD with RAI class as SD03 with source document item type as SDII to RAR.

Step 7: Intercompany Billing

Intercompany billing has been posted.

Step 8: Process Revenue Accounting Item’s related to Fulfillment Process

In transaction FARR_RAI_MON or Fiori App Manage Revenue Accounting Items, all processable RAI’s are transferred using default sender integration component as SD with RAI class as SD02 with source document item type as SDFI to RAR.

RAR Contract – Revenue Schedule (After Fulfillment)                                             (Step 5)

This is the final step to determine for each POB when revenue should be recognized. Revenue is recognized when POB is fulfilled – that is when Intercompany billing is posted, or goods issue is posted, or services are eligible for post. The system records costs and recognizes revenue based on allocated amounts. The Intercompany billing posting triggers real time creation of the revenue entry recording contract asset based on the allocated revenue. The solution is based on the Universal Journal and provides real time information on the data at point of time.

Summary of RAR Contract – Revenue Schedule (After Fulfillment)

In transaction FARR_RAI_MON or Fiori App Manage Revenue Accounting Items, RAR Contract details will be displayed with all information related to Order Items, Fulfillment Items and Invoice Items.

In October we can see 33,33% completion of the Service Item

In December we can see 100% completion of the Service Item

We can also see the document flow in Fiori App – Manage Revenue Contracts as below:

This brings us to end of test case of RAR Use Case for Event-Based Fulfillment of Performance Obligations – Intercompany Billing Document Process.

Hope you find this blog informative and helpful.

Thanks,

Jitakshi