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    Kannan Thoppae
    Rebates - How to estimate the price adjustments...
    Topic posted October 9, 2019 by Kannan Thoppae, last edited October 9, 2019, tagged Revenue Management, Tip 
    20 Views, 3 Comments
    Title:
    Rebates - How to estimate the price adjustments (Variable Consideration) in RMCS?
    Summary:
    Our client has a scenario where rabate is given contingent upon certain events. How do we estimate the rebates?
    Content:

    Contract includes a rebate to the customer upon achieving a target amount in the contract. The requirement is to estimate the rebate and reallocate to the other lines in the contract. The rebate will be given by way of credit based on actual. We tried the following steps.

    • Create a negative contract line for the rebates estimate amount.
    • As SSP representation type is Gross Margin, we populated $0 for the cost amount so that the margin will be above the SSP range.

    The expectation is that the negative lines gets reallocated to the other lines. But it does not seem to work that way. What is the expected behavior in this case?

     

    Version:
    Oracle Cloud 19C

    Comment

     

    • Helle Hennings

      Hello Kannan

       

      The Revenue Basis Data Import FBDI file provides the capability to send through revisions that relate to the original source document lines that you feed through, and that's how you would process revisions to original source lines.

      To process revision lines:

      VRM_SOURCE_DOC_LINES tab

      Use the column: 'Indicates the current source product line is a version line' and set value to 'Y' for the revision line

      Use the column: 'Specifies the version of the source product line' - the value '1' is the version value for the original source line and the value '2' (or 3, 4, 5 etc) is the version value for any subsequent revision lines.

      The SSP representation type for Gross Margin relates to the distinct performance obligation (e.g. most commonly the original source line but a perfomance obligation could consist of multiple promises that can only be full filled as one e.g. could be two source lines that become one performance obligation such as a fire truck and a ladder for a fire truck e.g. two source lines that become one performance obligation). SSP does not a such relate to the revision, as the revision relates to your original expected consideration of your original performance obligation and you're doing this by sending through a revision line in the Revenue Basis Data Import FBDI.

      Regards,

      Helle

    • Kannan Thoppae

      Hi Helle,

      Thank you for your response.

      I believe that you have given steps for contract revisions. My scenario is not a revision scenario. When the initial contract is created, can I process a negative contract line towards rebates and have the rebate reallocated to other lines?

      Thanks,

      Kannan

    • Helle Hennings

      The ASC 606 / IFRS 15 accounting standard clearly sets out that you need to estimate the expected consideration at inception (promise including estimated rebate) for the sales deal and such estimation includes expected rebates thus you should be making revisions to the original performance obligation within a contract over time when those estimates change  When the revision is processed it will be re-allocated to the other lines.

      Regards,

       

      Helle