(09) Completed Contract Method

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Table of content

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Table of content
1 (09) Completed Contract Method

1 (09) Completed Contract Method

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1 (09) Completed Contract Method

Use
You can use the Completed Contract Method for:
Sales orders
Projects
The Completed Contract Method enables the use of conservative accounting practices because revenues and profits are only realized when the order is
completed.

Prerequisites
Choose a results analysis method in simplified Customizing for Product Cost by Sales Order under Period-End Closing
Results Analysis Valuation Method.

Features
Until this sales order item has the status that causes the reserves and inventories to be canceled, the system updates all revenues as revenue surplus and all
costs as capitalized costs.
Situation when the order is released:
R(PA) = 0
C(PA) = 0
C(z) = C(a)
R(r) = R(a)
The revenue affecting net income and the costs affecting net income are zero.
The capitalized costs are equal to the actual costs.
The revenue surplus equals the actual revenue. The revenue surplus is basically a reserve.
The capitalized costs and the revenue surplus can be transferred to FI and EC-PCA when you settle.
Situation when the order is closed:
R(PA) = R(a)
C(PA) = C(a)
C(z) = 0
R(r) = 0

Example
You have planned revenues of USD 200,000 and costs of USD 120,000 for your sales order.
Period 01
In period 01 you have actual costs of USD 20,000 but no revenues. In results analysis, the system calculates the following data:
Cost of sales affecting net income of USD 0
Revenue affecting net income of USD 0
Capitalized costs in the amount of the actual costs (USD 20,000)
You then settle the following:
Capitalized costs to FI and EC-PCA
No cost of sales and no revenues to CO-PA
The following values are reported in CO-PA:
Profitability Analysis
Revenues affecting net income

Cost of sales affecting net income

Profit

The income statement shows the following values:

Income Statement
Expense

Revenue

Actual costs 20,000

Inventory increase
Capitalized costs 20,000

20,000

20,000

Period 02
In period 02 actual costs increase to USD 80,000. You deliver to your customer and send a milestone invoice for USD 100,000. The order is partially delivered
and partially billed. In results analysis, the system calculates the following data:
Cost of sales affecting net income of zero

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Revenue affecting net income of zero

Capitalized costs of USD 80,000
Revenue surplus of USD 100,000
You then settle the following:
Capitalized costs to FI and EC-PCA
Revenue surplus to FI and EC-PCA
The following values are reported in CO-PA:
Profitability Analysis
Revenues affecting net income

Cost of sales affecting net income

Profit

The income statement shows the following values:

Income Statement
Expense

Revenue

Actual costs 80,000

Actual revenue 100,000

Revenue surplus 100,000

Inventory increase
capitalized costs 80,000

180,000

180,000

Period 03
In period 03 actual costs increase to USD 90,000. You deliver a second amount to your customer and send a second milestone billing for USD 90,000. Total
revenue is USD 190,000. The order is partially delivered and partially billed. In results analysis, the system calculates the following data:
Cost of sales affecting net income of zero
Revenue affecting net income of zero
Capitalized costs of USD 90,000
Revenue surplus of USD 190,000
You then settle the following:
Capitalized costs to FI and EC-PCA
Revenue surplus to FI and EC-PCA
The following values are reported in CO-PA:
Profitability Analysis
Actual Revenues

Calculated cost of sales

Profit

The income statement shows the following values:

Income Statement
Expense

Revenue

Actual costs 90,000

Actual revenue 190,000

Revenue surplus 190,000

Capitalized costs 90,000

280,000

280,000

Period 04
In period 04 actual costs increase to USD 130,000. You deliver the remaining goods and send the customer the final invoice for USD 10,000. Total revenue is
USD 200,000. The order is now fully delivered and fully invoiced.
In results analysis, the system calculates the following:
Cost of sales of USD 130,000
Revenue affecting net income of USD 200,000
Capitalized costs of zero
Revenue surplus of zero
You then settle the following:
Cost of sales to CO-PA
Revenues to CO-PA
The cancellation of the capitalized costs and the revenue surplus to FI and EC-PCA
The following values are reported in CO-PA:
Profitability Analysis
Actual revenues

200,000

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Calculated cost of sales

130,000

Profit

70,000

The income statement shows the following values:

Income Statement
Expense

Revenue

Actual costs 130,000

Actual revenue 200,000

Profit 70,000
200,000

200,000

The order has a total profit of USD 70,000.

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