How a Ratable plan is generated in REVLOCK

Ratable Revenue Recognition Plan in Rev Rec

Rev Rec automatically generates revenue recognition schedules based on service start date and service end date. This article shows the calculations Rev Rec will use to establish monthly amounts.

Rev Rec defines a range-of-dates using the Half-Open approach (start <= x < end) where the service start date is inclusive while the service end date is exclusive.

You can choose between four methods.

30/360 Ratable Plan
Classic Ratable Plan
Daily Ratable Plan
End Month Exclusive

30/360 Ratable Plan

When this method is used Rev Rec generates Ratable plans using a simplifying assumption that each year is a 360-day year (twelve 30-day months).

(1) First Period

First month revenue recognition number is prorated based on number of days remaining in the first month. In case first month has 30 or more days, it is considered a full month. In such case full month revenue is recognized for the first month.

(2) Last Period

Last month revenue recognition number is prorated based on number of days remaining in the last month. In case last month has 30 or more days, it is considered a full month. In such case full month revenue is recognized for the last month.

(3) Remaining Periods

Revenue for the remaining period, i.e. period that are in between first and last period is calculated by dividing remaining revenue with number of remaining period.

Examples below explain how amounts for each step is calculated in 3 different scenarios.

Classic Ratable Plan

This is a classic method and prorates first and last period based on number of remaining days in a month

(1) First Period

First month revenue recognition number is prorated based on number of days remaining in the first month. In case first month has 28 or more days, it is considered a full month. In such case full month revenue is recognized for the first month.

(2) Last Period

Last month revenue recognition number is prorated based on number of days remaining in the last month. In case last month has 28 or more days, it is considered a full month. In such case full month revenue is recognized for the last month.

(3) Remaining Periods

Revenue for the remaining period, i.e. period that are in between first and last period is calculated by dividing remaining revenue with number of remaining period.

Examples below explain how amounts for each step is calculated in 3 different scenarios.

Example 3 - 28 days = Full period:- Rev Rec considers first or last period with 28 or more days to be a full month, that is the reason we see full month revenue for March 2020 in Example 3

Daily Ratable Plan

In this method Rev Rec does not calculates first month, last month revenue and divide the remaining contract value with remaining terms. Instead, it divides the total contract value with the number of days in a contract and multiply it with the number of days in each month.

End Month Exclusive

In this method Rev Rec generates ratable plans that includes full months revenue in the first month and none in the expiration month.

Updated on: 22/06/2022