RAR: Understanding RAR revenue allocation

• RAR revenue allocation engine

RAR revenue allocation works based on SSP value (standalone selling price) comparison to the
transaction price of a sales order item. Below is the small illustration →

However, columns are self-explanatory, I would like to explain revenue allocation process briefly here -

Col I represents revenue weightage based on SSP – System would try to adjust revenue weightage
based on transaction prices (Col K) to align back with SSP based revenue value (Col O).
In this reallocation process, RAR revenue engine would create +/- revenue value shifts to transaction
prices which is knowns as allocation effect (Col N).

• UR/CR calculations

System logic – on any given point of time, based on above calculations, system would
create UR/DR adjustment entries. Below are the steps to arrive on UR/DR calculations →

1. Segregates sender POB’s & receiver POB’s absolute value after SSP based price adjustments.

Sender Allocation % Weightage in Receiver Allocation % Weightage in

POB effect total sender value POB effect total sender value

8935115 -157.96 69.56445149 8935116 57.03 25.11560312

8935118 -69.11 30.43554851 8935117 33.93 14.94252874
8935119 35.95 15.83212225
8935120 18.57 8.178094861
8935121 81.59 35.93165103

Total -227.07 100 227.07 100

 2. Calculates weighted % per POB for sender & receiver POB’s.
3. Based on operation transactions applied to POB’s following entries will generated
a. Sender POB’s
i. Revenue recognized + Invoice dropped for sender POB would send pro-rata basis
adjusted UR/DR values to other POBs in the contract as shown below →
POB # c (Sender POB with allocated effect -69.11 USD)
- Reduction in UR would be generated in case linked POB already got revenue
recognized to reduce UR effect.
- DR shall be generated in case revenue is yet to be recognized.

Sender Allocation % Weightage in Receiver Allocation % Weightage in Weighted_effect

POB effect total sender value POB effect total sender value _POB_8935118
8935118 -69.11 30.43554851 8935116 57.03 25.11560312 -17.35739331
8935117 33.93 14.94252874 -10.32678161
8935119 35.95 15.83212225 -10.94157969
8935120 18.57 8.178094861 -5.651881358
8935121 81.59 35.93165103 -24.83236403
-69.11
The same values can be seen after ABC settlement runs →

UR generated for POB # 8935121

DR generated for POB’s 8935116 – 17 & 8935119 – 20 as per above distribution formulae.

b. Receiver POB’s
i. Revenue recognized first while sender POB hasn’t triggered any allocation yet. In this
case, allocation effect would sit as UR entry despite of invoice already dropped. Please
see below case →

FARR_D_POSTING dump before settlements→

After running A+B settlements, UR cleared of value $24.83 received from POB # 8935118 as allocation
%.

c. Settlements made for POB # 8935119 & # 8935120 →

Since both POB’s are receiver POB’s & revenue is yet to be recognized in future month, there
is no allocation effect which shall be transferred to other POB’s. In fact, both would receive
further allocation effect from POB # 8935115 once
 Highlighted block is DR effect from self POB since invoice processed before revenue recognition ( 1
month delay revenue – Time based).

%
%
Weightage
Sender Receiver Weightage
Allocation in total Allocation Weighted_effect_POB_8935115
POB POB in total
Sender
sender value
value
8935115 -157.96 69.56445 8935116 57.03 25.11560312 -39.67260669
8935117 33.93 14.94252874 -23.6032184
8935119 35.95 15.83212225 -25.00842031
8935120 18.57 8.178094861 -12.91811864
8935121 81.59 35.93165103 -56.75763597
-157.96

POB # 8935121 (Revenue recognized – Product POB) →

POB # 8935120 ( Revenue yet to be recognized – Service POB) →

POB # 8935119 (Revenue yet to be recognized – Service POB) →

POB # 8935117 (Revenue yet to be recognized – Service POB) →

Deferred Revenue → Invoice posted (838) + allocation effect (23.60) = 862.30

POB # 8935116 (Revenue yet to be recognized – Service POB) → FARR_D_POSTING

Deferred Revenue → Invoice posted (1409.96) + allocation effect (57.03) = 1449.63

Summary →
1) Change types of contracts
a) Change of estimates triggers if →
i. Exclude/Include POB from allocation w/o any allocation difference.
ii. Qty. change of POB.
iii. Residual allocation of POB changes.
iv. SSP changes – value, currency, tolerance value or % changes w/o change to duration, qty, price.
v. Changes of contractual prices for all allocation relevant POBs to 0.

b) Contract modification triggers if →

i. Condition type changes w/o affecting contractual pricing.
ii. Add new POB having SSP greater than 0.
iii. Delete POB
iv. SSP changes – value, currency, tolerance value with change to qty, price, duration.
v. Change in contractual price on POB.
vi. Invoice creating which changes contractual price.
c) Change from start w/o reallocation triggers if →
i. Changes made to POB that are not relevant to allocation for e.g. -start date(later), fulfilment type,etc.

2) Product/Services (PIT)
a) Allocation effect is positive (receiving)
i. Revenue event arrived
• UR will only be initialized on POB if revenue event has already been triggered (inc. partial
fulfilment)
• If UR value still not cleared to 0 after revenue event triggered on a POB that means,
performance obligations those are sending allocation effect has not yet amortized. Once
sender POB revenue event triggered, the subsequent settlement would also amortized
prorate basis UR balances on receiving performance obligations.
• Until Sender POBs not amortized, UR effect on receiver POBs would sit on UR – RA. This
transaction will happen despite of sender POB status has been completed status.
Once sender POB’s amortized, UR balance will be zeroed out. As well as RA balances too.
For e.g. POB # 8932020 (Product POB), where POB status is in “C”.
 As a new order item interfaced to order, the allocation effect gets initiated on UR -RA
accounts

ii. Revenue event NOT arrived

• DR will be initialized against RA entries of any sender POB has got dropped invoice (IC) for
the prorate basis of allocated amount. This is irrespective of invoice dropped for receiver POB
drop or not.
• DR will be cleared once invoice is dropped for receiver POB.

b) Allocation effect is negative (Sender)

a) Revenue event arrived
• Amortization will happen as per the allocated value in sender POB. The “additional” allocated
effect value shall be shared between all receiver POB’s as per the pro-rata basis allocation %.
If the receiver POB’s event already arrived – the allocation effect will top up revenue (RV -
allocation effect) against UR balances.

3) RAT_SVC/EX_WARR (OT) →

% Weightage in
%
Sender Allocation total Sender Receiver Allocation
Weightage
value

8937834 -774.33 29.18673813 8937822 1,668.07 -62.87438

8937835 -1,878.69 70.81326187 8937823 398.86 -15.03419
8937824 296.58 -11.17896
8937825 289.51 -10.91247

Total -2,653.02 100 2,653.02 -100

 POB # 8937834

POD dropped ( Fulfilment )

Period 1 settlement
%
Tenure Rev_Period Sender Allocation_effect Contract_Rev Allocated_amt Receiver Allocation
Weightage
12 Period 1, 8937834 -64.53 122.63 58.10 8937822 1,668.07
-40.57127
months June'22
8937823 398.86 -9.701185
8937824 296.58 -7.213502
8937825 289.51 -7.041544

Total -64.53 2,653.02 -64.5275

Invoicing processed

Period 1 settlement

Total_all Allocatio Contract

Rev_ Allocated
Period Sender ocation n_effect_ _Rev Receiver Allocation % Weightage
Period _rev
effect period _period

12 08.22 8937834 -774.33 -64.53 122.63 58.10 8937822 -486.86

62.87438466
Mnths
8937823 -116.41 15.03418745
8937824 -86.56 11.17895832
8937825 -84.50 10.91246956
8937834 639.14 DR_prorate_11_mnths
Total -774.33 -64.53 -774.33 100
Period 2 settlement