Residual Method and Two-Step Allocation
The residual method and two-step allocation for software are supported in Advanced Revenue Management (Revenue Allocation). They are used only for software. The residual method applies to items with the Allocation Type set to Software in the multi-element arrangement, referred to as a bundle. You can have items with Allocation Types other than Software, but the residual method does not apply to those items. For more information about allocation types, see Advanced Revenue Management (Revenue Allocation).
The residual method may be used when a bundle has some VSOE prices and some estimates of fair value. Some items have a VSOE price for their calculated fair value, but other items use an estimate. The Is VSOE column on revenue elements and the Is VSOE Price? column on allocation details indicate whether the fair value is a VSOE price. The residual method uses a second step to complete the allocation. In the second step, the VSOE items receive their VSOE prices and the remainder is allocated to the items without VSOE prices.
To use the residual method, the bundle must meet these conditions:
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The Allocation Type is Software on the item record.
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All undelivered items have a calculated fair value amount that is a VSOE price.
Note:Items have a calculated fair value amount that is a VSOE price when the Is VSOE Price? box is checked in the item's fair value price list record. For more information about the fair value price list, see Creating the Fair Value Price List.
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Not all software items are delivered.
Note:Items are not delivered if the Default as Delivered box on the item record is cleared. For more information, see Item Configuration for Advanced Revenue Management (Essentials) and (Revenue Allocation).
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Not all software items are VSOE.
Note:Items are not VSOE when the Is VSOE Price? box is cleared in the item's fair value price list record. For more information about the fair value price list, see Creating the Fair Value Price List.
The following item types do not need to meet the preceding conditions for the residual method to be applied:
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Kit/package items
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Assembly items
However, the Allocation Type must be set to Software on the item record for the residual method to be applied.
Suppose a parent kit item's Allocation Type is Normal, and the kit component item's Allocation Type is Software. In that case, the kit component element's Allocation Type may appear as Normal on the related revenue arrangement. However, the kit component element's Allocation Type is still Software and the residual method would still apply.
When the residual method is applied, the Residual box is checked in the Allocation Detail subtab on the revenue arrangement.
For more information about using the residual method, see:
When Multi-Book Accounting is enabled, Enable Two Step Revenue Allocation is a preference on the accounting book record. It is checked by default, but it can be cleared on a book-by-book basis. Two-step allocation cannot be turned off unless Multi-Book Accounting is enabled.