Prospective Merges
Prospective merge management uses the residual values of the merged revenue arrangements to represent the modified contract obligation. The process terminates and locks the original revenue arrangements and creates a new arrangement with the residual values as of the effective date. The prospective merge effective date is the first day of the first available open period.
Retrospective merges, in contrast, combine revenue elements and arrangements from multiple sources to represent a single performance obligation without expressly terminating the original arrangements. For information, see Combined Revenue Arrangements.
The prospective merge process relies on a calculated residual ratio. The residual ratio is the amount recognized prior to the prospective merge divided by the original revenue amount in the base currency. Residual amounts are calculated using 1 minus the residual ratio times the original amount. If you have foreign currency transactions, note that the amount recognized for purposes of calculating the residual ratio excludes any foreign currency revaluation adjustments.
To support prospective merge management, the following columns are included in the Revenue Element subtab on the revenue arrangement:
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Requires Revenue Plan Update – This field defaults to Yes when any of the revenue elements in a revenue arrangement require revenue recognition plan updates. This field is empty when the revenue recognition plans are up to date.
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Effective Start Date – The same as the prospective merge effective date. The field is populated only in a prospective merge revenue arrangement.
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Effective End Date – One day earlier than the prospective merge effective date. The field is populated only in the locked revenue arrangements that ended due to the prospective merge process.
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Original Quantity – The original quantity from the source. The amount in the Quantity column is calculated using the residual ratio.
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Original Discounted Sales Amount – The original sales amount for the original quantity, net of discounts from the source. In the prospective merge arrangement, the Discounted Sales Amount becomes the original discounted sales amount minus the amount recognized prior to the merge. In the locked revenue arrangement, the Discounted Sales Amount is the amount recognized prior to the merge.
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Residual Discounted Sales Amount – In a prospective merge arrangement, this column equals the Original Discounted Sales Amount multiplied by (1 minus the residual ratio). In the locked revenue arrangement, this column is the Original Discounted Sales Amount multiplied by the residual ratio.
For instructions to create a prospective merge, see Creating a Prospective Merge.
Details for the prospective merge process are included in the following sections:
Conditions for Prospective Merge Creation
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The effective date of a prospective merge is the first day of the first open period that is not an adjustment period. You cannot create a prospective merge if revenue recognition or reclassification journal entries have already been posted after the effective date. If you have prior changes that have not posted, reopen the prior period and post the updates before you create the prospective merge.
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You cannot create a prospective merge if any of the revenue elements in the revenue arrangements that you are merging requires revenue recognition plan updates.
Note:This condition is not applicable if the revenue elements in a revenue arrangement do not have existing revenue plans. This may happen when there is a newly created revenue arrangement, and the revenue plan still needs to be created.
Prospective Merge Impact on Original Revenue Arrangements and Plans
The revenue arrangements selected to participate in the prospective merge process and their sources are locked when the process is complete. Editing is disabled for the locked revenue arrangements and their revenue elements and revenue plans, which are truncated and remain with the revenue arrangements. Changes to the sources are not completely blocked but should be avoided. Those who attempt to change the sources receive a warning message.
The revenue elements have an effective end date that is one day prior to the prospective merge effective date.
The revenue element’s revenue plan status after the prospective merge can be one of the following:
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Not Started – The original revenue element’s revenue plan has not been created, or the original revenue element’s plan has been created, but no revenue has been recognized.
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In Progress – The original revenue element’s revenue plan has been created, and some revenue has been recognized but not all.
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On Hold – The original revenue element’s plan has been created, and the Hold Revenue Recognition box is checked. For more information about holding revenue recognition, see Editing Revenue Recognition Plans.
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Completed – The original revenue element’s plan is created, and all the revenue has been recognized.
Revenue element values are multiplied by the residual ratio to determine their truncated values:
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Quantity
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Sales Amount
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Residual Discounted Sales Amount
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Alternate Quantity (if non-zero)
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Calculated Fair Value Amount
The Prorated Discounted Sales Amount (Foreign Currency) for each element on the original revenue arrangement is used to determine the effective cumulative billing amount during reclassification. For more information about this field, see Revenue Element Field Reference. This new effective cumulative billing amount may lead to the creation of reclassification journal entries. For more information about prospective merge and reclassification, see Impact to Reclassification.
The revenue amount for the revenue element is the amount actually recognized through revenue recognition and reclassification journal entries as of the effective end date.
When the Multiple Currencies feature is enabled, the Exchange Rate on each revenue element remains the same as before the prospective merge. The exchange rate on each revenue element after running a prospective merge is the Prorated Discounted Sales Amount (Base Currency) divided by the Prorated Discounted Sales Amount (Foreign Currency).
The revenue plan end date for both actual and forecast revenue plans matches the Effective End Date on the revenue element. All plan periods with revenue recognized prior to the end date remain with the original revenue plans. The plan amount is equal to the total revenue recognized on the plan. You can view the revenue plans that belong to the original revenue arrangement, but you cannot edit them. If revenue plans were created but no revenue was recognized prior to the prospective merge, the revenue plans are deleted.
Prospective Merge Revenue Arrangements and Plans
The prospective merge revenue arrangement contains the residual values from the original revenue arrangements as of the prospective merge effective date. The prospective merge process generates new revenue elements and revenue recognition plans with the residual values.
Amounts in the Discounted Sales Amount column are equal to the Original Discounted Sales Amount minus the amount recognized prior to the prospective merge. Amounts in the Residual Discounted Sales Amount column are calculated using (1 minus the residual ratio) multiplied by the Original Discounted Sales Amount. Prospective merge revenue arrangements may include revenue elements with a Residual Discounted Sales Amount of zero. These revenue elements are required to support reclassification.
The Prorated Discounted Sales Amount (Foreign Currency) for each element on the prospective merge revenue arrangement is used to determine the effective cumulative billing amount for each new element during reclassification. For more information about this field, see Revenue Element Field Reference.
Revenue elements cannot be added to or removed from prospective merge revenue arrangements by editing the revenue arrangement. You can create subsequent prospective merges that include a prospective merge revenue arrangement.
Prospective merge revenue arrangements include a Revert Change Order button. When you click this button, you receive a warning. If you proceed, the revenue arrangement and its revenue elements and any revenue plans are deleted. The revenue arrangements, revenue elements, and revenue plans that existed prior to the prospective merge are reverted to their previous condition. You cannot revert a prospective merge if it meets either of these conditions:
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The prospective merge arrangement has recognized revenue or reclassified deferred revenue.
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The prospective merge arrangement has contract acquisition costs.
NetSuite creates new revenue plans for the residual values as part of the prospective merge process. All periods with recognized revenue prior to the merge effective date remain on the revenue plans for the original locked revenue arrangement. All periods on and after the effective date are included in the new prospective merge revenue plans. Any revenue amounts planned for periods prior to the effective date but not recognized before merge are added to the new revenue plans.
The Rev Rec Start Date for the new revenue plans is the prospective merge effective date. The Rev Rec End Date for actual revenue plans is the same as the original revenue plan. Revenue plans with zero amounts may be created when revenue elements with a Residual Discounted Sales Amount of zero are included in the revenue arrangement.
The following is an example of an original actual revenue recognition plan and the impact of the prospective merge process.
The original revenue element has the following characteristics:
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Create Revenue Plans On is set to Revenue Arrangement Creation.
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The revenue recognition rule is the same for actual and forecast plans.
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The revenue recognition rule has a six-month term, and the method is straight-line, even periods.
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The revenue amount is $1,200.
The actual and forecast revenue plans have lines that look like this:
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Planned Period |
Amount |
|---|---|
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July |
200 |
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August |
200 |
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September |
200 |
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October |
200 |
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November |
200 |
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December |
200 |
The revenue arrangement that includes this revenue element is part of a prospective merge with an effective date of September 1.
On the original locked revenue element, actual and forecast revenue plans are complete and revenue was recognized as a condition of the prospective merge process. The amount on the plans is $400. After the prospective merge, the revenue plans have the following lines:
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Period |
Amount |
|---|---|
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July |
200 |
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August |
200 |
The new revenue element that is included in the prospective merge revenue arrangement has revenue recognition plans with the amount of $800. The plan lines look like this:
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Actual Plan |
Forecast Plan |
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|---|---|---|---|
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Planned Period |
Amount |
Planned Period |
Amount |
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September |
200 |
September |
133.33 |
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October |
200 |
October |
133.33 |
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November |
200 |
November |
133.33 |
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December |
200 |
December |
133.33 |
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|
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January |
133.33 |
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|
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February |
133.34 |
Impact to Reclassification
Reclassification is run for both the original revenue arrangement and the prospectively merged revenue arrangement.
The original revenue arrangement is locked after the prospective merge process, and the total billed amounts must equal the total recognized amounts for all elements in the arrangement. The bill amount on the original revenue arrangement is split across the original and prospectively merged revenue arrangements based on the Prorated Discounted Sales Amount (Foreign Currency) on each arrangement. For more information about the Prorated Discounted Sales Amount (Foreign Currency) field, see Revenue Element Field Reference. Reclassification is run for elements on the original revenue arrangement and the prospectively merged revenue arrangement.
To complete the process for the original revenue arrangement, the following occurs:
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Carve in/carve out postings are reversed. This reversal is referred to as unwinding.
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The latest unbilled receivable posting is reversed. (The deferred revenue or unbilled receivable balances were carried over to the prospective merge as a negative or positive gross billing amount.)
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Unbilled receivable adjustments are created for the original revenue arrangement until cumulative billing matches cumulative revenue recognition in foreign currency. When running reclassification, you may also get carve in/carve out and foreign currency adjustments on the original revenue arrangement.
The deferred revenue balances that are carried over to the prospectively merged revenue arrangement are reallocated based on the new carve-in/carve-out ratio. The element’s gross cumulative billing amount becomes the sum of the deferred revenue balance after unwinding and any new billing amounts for the revenue element.
To run reclassification in a reopened period, you must revert any prospective merges to unlock the locked revenue arrangements.
For an example of reclassification for a prospective merge, see Example of Foreign Currency and Unbilled Receivable Adjustments Prospective Merge After Partial Billing.
Not Supported
Prospective merge management does not support revenue arrangements with the following types of revenue recognition plans:
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Project revenue plans
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Subscription revenue plans when the box is clear for the accounting preference Create Revenue Elements for Subscription Revisions.
For more information about this accounting preference, see Setting the Optional Accounting Preference for Advanced Revenue Management in the SuiteBilling documentation.
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Any plan created from a custom revenue event for which Create Revenue Plan per Event and Percent Complete are both false.