Using VSOE with Discount Items

Discount items can affect vendor-specific objective evidence (VSOE) allocation when they are added to a transaction.

Important:

Use non-posting discount items to ensure that the net amount of each line and the transaction as a whole is amortized correctly.

For information about using VSOE with discount items, see:

Rules for Discounts on VSOE Transactions
VSOE Discount Example
Implicit VSOE Discounts
Implicit Discounts and the Residual Method

Rules for Discounts on VSOE Transactions

When a discount is included on a transaction, the discount is applied in a particular way for VSOE processing and affects the amount of revenue recognized by each item. Discount effects on VSOE prices can be different than discount effects on sales amounts.

The following rules apply for discounts on all VSOE transactions:

Discounts are applied proportionately to lines based on their VSOE prices, except when the residual method is applied. See Implicit Discounts and the Residual Method.
A discount is applied to the entire bundle if the discount is added as a line item after an item group on a transaction.
If the Permit Discount field on an item record is set to Never, then discounts are not applied to the item, even when the residual method is used. This setting is typically used for specified upgrades.

For more information about this field, read Setting Up VSOE on an Item Record.
If a discount is applied to an entire transaction, instead of a line item, then the transaction can contain a maximum of one bundle. The bundle can be either an item group bundle added as a line, or can be a transaction bundle. If multiple bundles are included on a discounted transaction, the VSOE allocation cannot be calculated.

NetSuite uses the VSOE settings of items and discounts associated with the bundle to calculate the VSOE allocation for the bundle.

VSOE Discount Example

For example, when a transaction meets the following requirements, the post-discount sales amount is allocated proportionately to each item based on the VSOE amount for each item:

A discount has been applied to the entire bundle.
All of the items have an assigned VSOE price.
The total VSOE price of the bundle is greater than the total sales price.
All items have been delivered.

In this example, the sales order is marked Is VSOE Bundle and includes the following:

Item	VSOE Price	Delivered?	VSOE %	Invoice price	Calculations	VSOE Allocation
Installation Service 302	$1,000	Yes	18.1817%	$0	(3,300 x .181817) = 605.45	$605.45
Software Product 401	2,000	Yes	36.3637%	$2200	(3,300 x .363637) =1210.91	1,210.91
Software Product 501	2,500	Yes	45.4547%	1,500	(3,300 x .454547) = 1513.64	1,513.64
Subtotal			100.00%	3,700
10% transaction discount				(370)
Total	$5,500		100.00%	$3,330		$3,330.00

Note:

If a bundle includes a discount, but no member items permit a discount because they are not delivered or their permit discount setting is Never, then NetSuite does not calculate the VSOE allocation when Auto-allocate VSOE is set.

Implicit VSOE Discounts

VSOE bundle pricing can reflect a discount even if a transaction discount is not set or a line item discount added. These implicit discounts occur in cases that the total list price of all elements is less than the total VSOE price for the bundle.

For example, you enter a sales order that shows the following bundle items and a line item discount:

Item	Invoice price	VSOE Price
Product 1	$120	$120
Product 2	$120	$80
Product 3	$120	$160
Discount	($60)
Total	$300	$360

The $60 line item discount causes the invoice price to be less than the VSOE price, and the discount is allocated to eligible member items, as follows:

Item	Invoice price	VSOE Price	VSOE Calculation	Allocation
Product 1	$100	$120	120/360 x 300	$100.00
Product 2	$100	$80	80/360 x 300	$66.67
Product 3	$100	$160	120/360 x 300	$133.33
Discount	allocated to items
Total	$300	$360		$300.00

Next, you enter a sales order that shows the following bundle items, but the discount is implicit instead of added as a line item.

Item	Invoice price	VSOE Price
Product 1	$100	$120
Product 2	$100	$80
Product 3	$100	$160
Total	$300	$360

In this case, a discount is not specified for the transaction or for a line, but a discount of $60 is implicit because the total VSOE price is $60 greater than the invoice price ($360 - 300 = 60). Implicit discounts are allocated in the same way that line-item and transaction discounts are allocated.

Unless the Residual Method is being used, the discount of $60 is allocated to each bundle member, except members set as Permit discount = Never. The $60 implicit discount is allocated the same as the line-item discount, as follows:

Item	Invoice price	VSOE Price	VSOE Calculation	Allocation
Product 1	$100	$120	120/360 x 300	$100.00
Product 2	$100	$80	80/360 x 300	$66.67
Product 3	$100	$160	120/360 x 300	$133.33
Total	$300	$360		$300.00

Implicit Discounts and the Residual Method

If the residual method is used, any discounts (implicit, transaction or line item) are applied only to items with a Delivered VSOE status.

For example, you enter a sales order that does not include a transaction or line-item discount. The difference between the VSOE price of the undelivered items ($240) and the total invoice price ($300) is allocated to the delivered item.

Item	Invoice price	VSOE Price	VSOE Allocation	Delivered
Product 1	$100	$?	300 - 240 = $60.00	Yes
Product 2	$100	$80	$80.00	No
Product 3	$100	$160	$60.00	No
Total	$300

For more information on the residual method, read Using the Residual Method of Revenue Recognition.

Rules for Discounts on VSOE Transactions

VSOE Discount Example

Implicit VSOE Discounts

Implicit Discounts and the Residual Method

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