Contract Acquisition Cost Allocation
The contract acquisition cost amount that you enter in the revenue arrangement header is allocated across the revenue elements whose Allocation Type is not Exclude. Allocation occurs according to the value in the Revenue Allocation Ratio field for each element. At least one revenue element must have an Allocation Type of Normal or Software for allocation to occur. The allocated amount is displayed in the Allocated Contract Acquisition Cost Amount (Base Currency) field of the element. The Advanced Revenue Management (Revenue Allocation) feature must be enabled as a prerequisite for cost allocation. For information about enabling this feature, see Enabling the Advanced Revenue Management (Revenue Allocation) Feature.
When you change the value in the Contract Acquisition Cost Amount (Base Currency) field in the header, the cost is reallocated to the elements. This reallocation adjusts the allocated cost amounts for the revenue elements. If a source update adds or removes elements from an arrangement, NetSuite adjusts the allocated amounts according to the new revenue allocation ratios.
You can adjust the cost allocation for the revenue elements by entering values in the Contract Acquisition Cost Allocation Ratio Override field. When you save the revenue arrangement, the system updates the allocated cost amount using the override ratio. The sum of the values of the Contract Acquisition Cost Allocation Ratio Override field for all elements in the arrangement must equal 100%. When you use cost override ratios, each element must have a non-zero override ratio. When you click Reallocate Cost near the top of the revenue arrangement, the system clears the override ratios. The allocated costs are restored to amounts based on the revenue allocation ratios.
The Cost Amortization Plan subtabs of associated revenue recognition plans are not automatically updated when you adjust cost allocation. You must click Update Revenue Plans after you reallocate costs.
Revenue Elements Excluded from Cost Allocation
When revenue elements have the Allocation Type set to Exclude, NetSuite excludes them from cost allocation, as well as revenue allocation. You cannot add a contract acquisition cost to a revenue arrangement when all the revenue elements are excluded from allocation. The cost allocation amount of an excluded element may carry over from a merge. The carryover occurs when the element is not a return of a positive element in the arrangement. Although cost allocation amount is excluded from allocation, it is counted in the total contract acquisition cost amount in the header.
Merges with Cost Allocation
When you check the Enable Advanced Cost Amortization accounting preference, the Merge Revenue Arrangements for Linked Sources page changes. With the preference checked, the page includes filters for Contract Acquisition Expense Account and Contract Acquisition Deferred Expense Account. When these expense account filter fields are blank, all revenue arrangements that match the other criteria are listed. You must use caution, however, when you select revenue arrangements or elements that are not filtered for expense and deferred expense accounts. If the revenue arrangements you select for merge have revenue plans and include a Contract Acquisition Cost Amount, matching constraints apply to the merge. The Contract Acquisition Expense Account and Contract Acquisition Deferred Expense Account must match for all revenue arrangements and elements in the merge.
The Allocated Contract Acquisition Cost Amount (Base Currency) value of individual elements remains the same when the elements are merged into a new arrangement. The contract acquisition cost amount in the header of the new arrangement is the sum of the allocated amounts for the revenue elements. The revenue allocation ratio is ignored. NetSuite populates the cost allocation ratio override field with a value equal to the allocated cost amount over the total cost amount in the header. For more information about the merge process, see Combination and Modification of Performance Obligations.
For example, you begin with two revenue arrangements.
Arrangement A has a Contract Acquisition Cost Amount of $60 in the header and the following element values:
|
Element Item |
Revenue Allocation Ratio |
Contract Acquisition Cost Allocation Ratio Override |
Contract Acquisition Cost Allocation Amount |
|---|---|---|---|
|
License |
60% |
30% |
$18 |
|
Support |
40% |
70% |
$42 |
Arrangement B has a Contract Acquisition Cost Amount of $80 in the header and the following element values:
|
Element Item |
Revenue Allocation Ratio |
Contract Acquisition Cost Allocation Ratio Override |
Contract Acquisition Cost Allocation Amount |
|---|---|---|---|
|
License |
50% |
Empty |
$40 |
|
Support |
10% |
Empty |
$8 |
|
Training |
40% |
Empty |
$32 |
By merging linked sources, you combine the support item from arrangement A with the license item from arrangement B to form a new arrangement C. The results are as follows.
Arrangement C has a Contract Acquisition Cost Amount of $82 ($42 + $40) in the header and the following element values:
|
Element Item |
Revenue Allocation Ratio |
Contract Acquisition Cost Allocation Ratio Override |
Contract Acquisition Cost Allocation Amount |
|---|---|---|---|
|
License |
|
$40 ÷ $82 = 48.78% |
$40 |
|
Support |
|
$42 ÷ $82 = 51.22% |
$42 |
The new arrangement A has a Contract Acquisition Cost Amount of $18 in the header and the following element values:
|
Element Item |
Revenue Allocation Ratio |
Contract Acquisition Cost Allocation Ratio Override |
Contract Acquisition Cost Allocation Amount |
|---|---|---|---|
|
License |
|
$18 ÷ $18 = 100% |
$18 |
The new arrangement B has a Contract Acquisition Cost Amount of $40 ($8 + $32) in the header and the following element values:
|
Element Item |
Revenue Allocation Ratio |
Contract Acquisition Cost Allocation Ratio Override |
Contract Acquisition Cost Allocation Amount |
|---|---|---|---|
|
Support |
|
$8 ÷ $40 = 20% |
$8 |
|
Training |
|
$32 ÷ $40 = 80% |
$32 |
If you change the amount in the header of any of these arrangements, the allocated cost amounts are adjusted using the cost allocation ratio overrides.
You can force merged revenue arrangements to reallocate costs according to the new revenue allocation ratios. To do so, on the revenue arrangement, click Reallocate Cost. The override ratios are cleared, and the allocated cost amounts for the elements are again based on the revenue allocation ratios. The Cost Amortization Plan subtabs of associated revenue recognition plans are not automatically updated. You must click Update Revenue Plans after you reallocate costs.