Example of Reversing Distributions Due to Retroactive Ownership Change
Consider an active ownership definition that has the following information.
| Effective Dates | Stakeholders | Ownership Percentages |
|---|---|---|
| 1/01/2019 - 12/31/2019 | S1, S2 | 2 stakeholders, 50% each |
Cost transactions for $500 and $1,000 were distributed using this ownership definition.
| Transaction | Transaction Date | Stakeholder | Distributions |
|---|---|---|---|
| 500 | 2/01/2019 | S1 | 250 |
| 2/01/2019 | S2 | 250 | |
| 1,000 | 6/01/2019 | S1 | 500 |
| 6/01/2019 | S2 | 500 |
Starting 6/01/2019, the joint operating agreement changed. A new stakeholder, S3, was added and the new ownership percentages were revised as follows:
- S1 = 25%
- S2 = 25%
- S3 = 50%
To reflect this change, the joint venture accountant shortened the original ownership definition so that it ended on 5/31/2019 and created a new ownership definition effective from 6/01/2019 with the revised stakeholder percentages.
| Ownership Definition | Effective Dates | Ownership |
|---|---|---|
| Original | 1/01/2019 - 5/31/2019 | S1 50%, S2 50% |
| New | 6/01/2019 - 12/31/2019 | S1 25%, S2 25%, S3 50% |
The change to the original ownership definition triggers the adjustments process, which automatically identifies distributions that need to be reversed.
- The distributions associated with the $500 transaction remain valid because the transaction date (2/01/2019) falls within the original ownership period.
- The distributions associated with the $1,000 transaction are no longer valid because the transaction date (6/01/2019) falls after the revised end date of the original ownership definition.
To reverse the impacted distributions, the joint venture accountant runs the adjustments process. The process automatically cancels the original distributions and creates corresponding reversal entries, as shown in the following table:
| Transaction | Transaction Date | Stakeholder | Distribution | Distribution Line Type |
|---|---|---|---|---|
| 1000 | 6/01/2019 | S1 | 500 | Canceled (original distribution line) |
| S1 | -500 | Reversed | ||
| S2 | 500 | Canceled (original distribution line) | ||
| S2 | -500 | Reversed |
If the original distributions were invoiced, the reversed distributions must be further processed to create credit memos in Receivables.
The adjustments process also automatically redistributes the $1,000 transaction using the new ownership definition. As a result, the transaction is redistributed among all three stakeholders based on the revised ownership percentages, as shown in the following table:
| Transaction | Transaction Date | Stakeholders | Distributions | Ownership Percentages | Distribution Line Type |
|---|---|---|---|---|---|
| 1,000 | 6/01/2019 | S1 | 250 | 25% | Redistributed |
| S2 | 250 | 25% | Redistributed | ||
| S3 | 500 | 50% | Redistributed |
You can review the redistributed entries before you create invoices or assign them to partner contributions.