Contract impairment

Supported impairment types

The supported Impairment Type flag on the canceled line is as follows:

CONTRACT IMPAIRMENT (Type 1)
When the Impairment Type flag is set to CONTRACT IMPAIRMENT, an Impairment Account must be set up in the system. When the RORD line is collected, the impairment amount goes to the impairment account type immediately.
NEW POB RATABLE (Type 2)
When the Impairment Type flag is set to NEW POB RATABLE, the system creates a new POB based on the canceled line with the remaining negative adjustment amount (impairment amount), which is to be amortized over the remaining terms.
NULL (Type 3)
When the Impairment Type flag is null on the RORD line, the impairment amount remains on the SO line. If a new SO line joins the existing contract, the system performs reallocation on the new and existing SO lines, and the deferral balance sitting on the canceled line is spread into the remaining SO lines. If you do not want to have the new SO joining the revenue contract in this scenario, you can set the revenue contract to Retrospective and then reallocate the contract.
R AND R WITHIN SSP (Type 4)
The impairment amount is kept as is and amortized over the term of the ripped contract. The ripped contract is closed for further linking. No new POB can be collected for the ripped contract. Instead, the new POB will go to a new revenue contract created by the system. If any deferral (either full or partial) happens to any line in the existing revenue contract, the system will not unfreeze the revenue contract and the allocation remains unaffected.
RETROSPECTIVE (Type 5)
When this type of contract impairment occurs, the revenue contract is reallocated in retrospective mode.
NEW POB IMMEDIATE (Type 6)
When this type of impairment occurs, the impairment amount is released immediately.

For a contract to get into any of the above contract impairment types except Type 5, the contract must trigger prospective allocation based on the contract modification rule set for line cancellation.

RORD collection sequence

Although RORD lines can be collected with different values of the Impairment Type flag, the sequence of collecting different types of the RORD line matters within the same open period. The RORD line of Type 4 cannot be collected with other types of RORD lines for the same SO line in the same batch. After the RORD line of Type 4 has been collected for an SO line in the current period, other types of RORD lines cannot be collected for the same SO line in the same period.

The following table explains the system treatment and the end-user action for different data collection scenarios of the RORD lines in the same open period.

Data collection scenario within the same period	System treatment	End-user action
Collect RORD lines of Type 1, 2, or 3 in one batch. Collect RORD lines of Type 1, 2, or 3 in another batch.	Both batches can be collected. The latest type specified on the line will prevail and be used for contract impairment. The revenue contract will be reallocated.	N/A
Collect RORD lines of Type 4 in one batch. Collect RORD lines of Type 4 in another batch.	Both batches can be collected. The system will stop allocation for the revenue contract and release the adjustment revenue on the line.	N/A
Collect RORD lines of Type 1, 2, or 3 in one batch. Collect RORD lines of Type 4 in the same batch.	The batch is stopped in staging.	Update the Impairment Type flag on the RORD line in the batch and make sure that Type 4 does not coexist with other impairment types or delay the RORD line of Type 4 to the next open period.
Collect RORD lines of Type 1, 2, or 3 in one batch. Collect RORD lines of Type 4 in another batch.	The first batch can be collected. Whether the second batch can be collected falls into different circumstances: If RORD lines of Type 1 or Type 3 are collected in the first patch and revenue has been posted before the RORD line of Type 4 is collected, the second batch can be collected. The system will freeze allocation based on the posted amount, and set the R&R Flag of the impaired revenue contract to R, which is visible in the Overview tab on the Revenue Contract Detail page. In any other circumstances, the second batch is stopped in staging. The latest type specified on the line in the first batch will prevail and be used for contract impairment. The revenue contract will be reallocated.	When the revenue contract is frozen by the system, you can manually unfreeze the contract. Then, the R&R Flag will be changed to Y. When the second batch is stopped in staging, update the Impairment Type flag on the RORD line in the second batch or delay the second batch to the next open period.
Collect RORD lines of Type 4 in one batch. Collect RORD lines of Type 1, 2, or 3 in another batch.	The first batch can be collected, but the second batch is stopped in staging. The system will stop allocation and release the adjustment revenue on the line for Type 4.	Update the Impairment Type flag on the RORD line in the second batch or change the revenue contract to a non-R&R contract. To do the latter, go to Revenue Workbench and unfreeze the revenue contract.

Contract Impairment

When the Impairment Flag value is CONTRACT IMPAIRMENT, the impairment amount goes to the impairment account type.

In the following example, a revenue contract has three support lines and starts from January 1 to March 31, 2019. Each line lasts for a period of one month. These support lines are grouped into the same revenue contract based on the RC grouping template, which uses the sales order number as the grouping logic.

*Table 1: Sales order lines collected into Zuora Revenue*
SO NO.	SO Line ID	Line item	Ext. List Price	Ext. Sell Price	SSP %	Start Date	End Date
1001	101	Support	3600	1200	72	01-Jan-2019	31-Jan-2019
1001	102	Support	3600	2400	72	01-Feb-2019	28-Feb-2019
1001	103	Support	3600	3600	72	01-Mar-2019	31-Mar-2019

The initial entry for carves is created either at the time of schedule creation or at the time of billing when data is collected by Zuora Revenue. First, Ext. SSP Price for each line is calculated based on the following formula:

Ext. SSP Price = Ext. List Price * SSP %

*Table 2: Extended SSP price calculation*
SO NO.	SO Line NO.	Line Item	Ext. List Price (A)	SSP % (B)	Ext. SSP Price (A*B/100)
1001	101	Support	3600	72	2592
1001	102	Support	3600	72	2592
1001	103	Support	3600	72	2592
Total					7776

Then, the RSP is calculated based on the following formula for each line:

RSP = Ext. SSP Price/Sum of Ext. SSP Price

The Allocated Price is calculated based on the following formula:

Allocated Price = Sum of Ext. Sell Price * RSP

The carve-in amount for the first line and the carve-out amount for the third line are derived.

*Table 3: Carves calculation*
SO NO.	SO Line ID	Line Item	Ext. Sell Price (A)	Ext. SSP Price	RSP	Allocated Price (B)	Carves (B-A)
1001	101	Support	1200	2592	0.3333	2400	1200
1001	102	Support	2400	2592	0.3333	2400	0
1001	103	Support	3600	2592	0.3333	2400	-1200
Total			7200	7776

The revenue is scheduled based on the UPON BOOKING release event. The accounting entries are shown as follows.

*Table 4: Accounting entries*
NO.	RC ID	Line ID	Account Type	Currency	Dr	Cr	Period	Initial Reporting Entry Flag
1	1	101	Contract liability	USD	1200		Jan-19
2	1	101	Revenue	USD		1200	Jan-19
3	1	102	Contract liability	USD	2400		Feb-19
4	1	102	Revenue	USD		2400	Feb-19
5	1	103	Contract liability	USD	3600		Mar-19
6	1	103	Revenue	USD		3600	Mar-19
7	1	101	Adjustment Liability	USD		1200	Jan-19	Y
8	1	103	Adjustment Liability	USD	1200		Jan-19	Y
9	1	101	Adjustment Liability	USD	1200		Jan-19
10	1	101	Adjustment Revenue	USD		1200	Jan-19
11	1	103	Adjustment Liability	USD		1200	Mar-19
12	1	103	Adjustment Revenue	USD	1200		Mar-19

The revenue recognized at the end of January is 2400 (1200 contractual revenue + 1200 carve-in revenue). The revenue recognized at the end of February is 4800 (1200 contractual revenue for the 1st period + 1200 carve-in revenue for the 1st period + 2400 contractual revenue for the 2nd period).

After the revenue has been recognized for two months, the RORD line is collected in the Mar-19 period with the impairment flag being CONTRACT IMPAIRMENT to cancel the third line of the contract. Based on the contract modification rule, it triggers prospective allocation for the revenue contract.

*Table 5: Impact of line item after change*
SO NO.	SO Line ID	Line Item	Ext. List Price	Ext. Sell Price	Start Date	End Date	Unscheduled Adjustment
1001	101	Support	3600	1200	01-Jan-2019	31-Jan-2019	0
1001	102	Support	3600	2400	01-Feb-2019	28-Feb-2019	0
1001	103	Support	3600	3600	01-Mar-2019	31-Mar-2019	-1200

The carve-out amount of the canceled line becomes the impairment amount. The accounting entries that are created when the third line is canceled with the CONTRACT IMPAIRMENT flag are shown as follows:

*Table 6: Schedule after collection*
NO.	RC ID	Line ID	Account Type	Currency	Dr	Cr	Period
1	1	101	Contract Liability	USD	1200		Jan-19
2	1	101	Revenue	USD		1200	Jan-19
3	1	102	Contract Liability	USD	2400		Feb-19
4	1	102	Revenue	USD		2400	Feb-19
5	1	103	Contract Liability	USD	3600		Mar-19
6	1	103	Revenue	USD		3600	Mar-19
7	1	101	Adjustment Liability	USD		1200	Jan-19
8	1	103	Adjustment Liability	USD	1200		Jan-19
9	1	101	Adjustment Liability	USD	1200		Jan-19
10	1	101	Adjustment Revenue	USD		1200	Jan-19
13	1	103	Contract Liability	USD		3600	Mar-19
14	1	103	Revenue	USD	3600		Mar-19
15	1	103	Adjustment Liability	USD		1200	Mar-19
16	1	103	Contract Impairment	USD	1200		Mar-19

New entries are created when the cancellation of the third line is collected with the CONTRACT IMPAIRMENT flag. The unposted allocation recognition entries are deleted, which are line 11 and 12 in Table 4.

New POB Ratable

When the Impairment Flag value is NEW POB RATABLE, a new line is created with a POB as impairment for the impairment amount. The new line captures all the characteristics of the canceled line. Revenue of the impairment amount is recognized based on the start date and end date of the canceled line and the trigger for revenue release is Upon Booking.

In the following example, the revenue contract has three support lines and starts from January 1 to March 31, 2019. Each line lasts for a month period. The three lines are grouped into the same revenue contract based on the RC grouping template, which uses the sales order number as the grouping logic.

*Table 7: Lines collected into Zuora Revenue*
SO NO.	SO Line ID	Line Item	Ext. List Price	Ext. Sell Price	SSP %	Start Date	End Date
2001	201	Support	3600	1200	72	01-Jan-2019	31-Jan-2019
2001	202	Support	3600	2400	72	01-Feb-2019	28-Feb-2019
2001	203	Support	3600	3600	72	01-Mar-2019	31-Mar-2019

The initial entry for carves is created either at the time of schedule creation or at the time of billing when data is collected by Zuora Revenue. First, Ext. SSP Price for each line is calculated based on the following formula:

Ext. SSP Price = Ext. List Price * SSP %

*Table 8: Extended SSP price calculation*
SO NO.	SO Line ID	Line Item	Ext. List Price (A)	SSP % (B)	Ext. SSP Price (A*B/100)
2001	201	Support	3600	72	2592
2001	202	Support	3600	72	2592
2001	203	Support	3600	72	2592

Then, the RSP is calculated based on the following formula for each line:

RSP = Ext. SSP Price/Sum of Ext. SSP Price

The Allocated Price is calculated based on the following formula:

Allocated Price = Sum of Ext. Sell Price * RSP

The carve-in amount for the first line and the carve-out amount for the third line are derived.

*Table 9: Carves calculation*
SO NO.	SO Line NO.	Line Item	Ext. Sell Price (A)	Ext. SSP Price	RSP	Allocated Price (B)	Carves (B-A)
2001	201	Support	1200	2592	0.3333	2400	1200
2001	202	Support	2400	2592	0.3333	2400	0
2001	203	Support	3600	2592	0.3333	2400	-1200
Total			7200	7776

The revenue is scheduled based on the UPON BOOKING release event. The accounting entries are listed as follows:

*Table 10: Schedule*
NO.	RC ID	Line ID	Account Type	Currency	Dr	Cr	Period	Initial Reporting Entry Flag
1	2	201	Contract liability	USD	1200		Jan-19
2	2	201	Revenue	USD		1200	Jan-19
3	2	202	Contract liability	USD	2400		Feb-19
4	2	202	Revenue	USD		2400	Feb-19
5	2	203	Contract liability	USD	3600		Mar-19
6	2	203	Revenue	USD		3600	Mar-19
7	2	201	Adjustment Liability	USD		1200	Jan-19	Y
8	2	203	Adjustment Liability	USD	1200		Jan-19	Y
9	2	201	Adjustment Liability	USD	1200		Jan-19
10	2	201	Adjustment Revenue	USD		1200	Jan-19
11	2	203	Adjustment Liability	USD		1200	Mar-19
12	2	203	Adjustment Revenue	USD	1200		Mar-19

The revenue recognized at the end of January is 2400 (1200 contractual revenue + 1200 carve in revenue). The revenue recognized at the end of February is 4800 (1200 contractual revenue for the first period + 1200 carve-in revenue for the first period + 2400 contractual revenue for the second period).

After the revenue has been recognized for two months, the RORD line is collected in the Mar-19 period with the impairment flag being NEW POB RATABLE to cancel the third line of the contract. Based on the contract modification rule, it triggers prospective allocation for the revenue contract.

*Table 11: Impact of line item after change*
SO NO.	SO Line ID	Line item	Ext. List Price	Ext. Sell Price	Start Date	End Date	Unscheduled Adjustment	Impairment Amount
2001	201	Support	3600	1200	01-Jan-2019	31-Jan-2019	0	0
2001	202	Support	3600	2400	01-Feb-2019	28-Feb-2019	0	0
2001	203	Support	3600	3600	01-Mar-2019	31-Mar-2019	-1200	0
2001	204		0	0	01-Mar-2019	31-Mar-2019	0	-1200

The carve-out amount of the canceled line becomes the impairment amount. A new line is created for that amount with impairment as its POB. The Impairment amount is recognized based on the start and end date of the canceled line. See the table below for the accounting entries created when the third line is canceled with the impairment flag being NEW POB RATABLE.

*Table 12: Schedule after collection*
NO.	RC ID	Line ID	Account Type	Currency	Dr	Cr	Period
1	2	201	Contract Liability	USD	1200		Jan-19
2	2	201	Revenue	USD		1200	Jan-19
3	2	202	Contract Liability	USD	2400		Feb-19
4	2	202	Revenue	USD		2400	Feb-19
5	2	203	Contract Liability	USD	3600		Mar-19
6	2	203	Revenue	USD		3600	Mar-19
7	2	201	Adjustment Liability	USD		1200	Jan-19
8	2	203	Adjustment Liability	USD	1200		Jan-19
9	2	201	Adjustment Liability	USD	1200		Jan-19
10	2	201	Adjustment Revenue	USD		1200	Jan-19
13	2	203	Contract Liability	USD		3600	Mar-19
14	2	203	Revenue	USD	3600		Mar-19
15	2	203	Adjustment Liability	USD		1200	Mar-19
16	2	203	Contract Impairment	USD	1200		Mar-19
17	2	204	Contract Impairment	USD		1200	Mar-19
18	2	204	Adjustment Liability	USD	1200		Mar-19
19	2	204	Adjustment Liability	USD		1200	Mar-19
20	2	204	Adjustment Revenue	USD	1200		Mar-19

New entries are created when the cancelation of the third line is collected with the NEW POB RATABLE impairment type flag. The unposted allocation recognition entries are deleted, which are line 11 and 12 in Table 10.

The impairment amount that gets debited in the canceled line and subsequently credited to the new line is moved to the adjustment liability account and then to the adjustment revenue account. The new POB created with the new line has the name of IMPAIRMENT, which is a seeded POB. The revenue for the impairment POB is recognized based on the start date and end date of the canceled line.

Null

When the impairment type flag is blank, the impairment amount is left out in the revenue contract. You can choose to customize the treatment for the impairment amount.

In the following example, the revenue contract has three support lines and starts from January 1 to March 31, 2019. Each line lasts for a month period. The lines are grouped into the same revenue contract based on the RC grouping template, which uses the SO number as the grouping logic.

*Table 13: Lines collected to Zuora Revenue*
SO NO.	SO Line ID	Line Item	Ext. List Price	Ext. Sell Price	SSP %	Start Date	End Date
3001	301	Support	3600	1200	72	01-Jan-2019	31-Jan-2019
3001	302	Support	3600	2400	72	01-Feb-2019	28-Feb-2019
3001	303	Support	3600	3600	72	01-Mar-2019	31-Mar-2019

The initial entry for carves is created either at the time of schedule creation or at the time of billing when data is collected by Zuora Revenue. First, Ext. SSP Price for each line is calculated based on the following formula:

Ext. SSP Price = Ext. List Price * SSP %

*Table 14: Extended SSP price calculation*
SO NO.	SO Line ID	Line Item	Ext List Price (A)	SSP % (B)	Ext. SSP Price (A*B/100)
3001	301	Support	3600	72	2592
3001	302	Support	3600	72	2592
3001	303	Support	3600	72	2592

Then, the RSP is calculated based on the following formula for each line:

RSP = Ext. SSP Price/Sum of Ext. SSP Price

The Allocated Price is calculated based on the following formula:

Allocated Price = Sum of Ext. Sell Price * RSP

The carve-in amount for the first line and the carve-out amount for the third line are derived.

*Table 15: Carves calculation*
SO NO.	SO Line ID	Line Item	Ext Sell Price (A)	Ext. SSP Price	RSP	Allocated Price (B)	Carves (B-A)
3001	301	Support	1200	2592	0.3333	2400	1200
3001	302	Support	2400	2592	0.3333	2400	0
3001	303	Support	3600	2592	0.3333	2400	-1200
Total			7200	7776

The revenue is scheduled based on the UPON BOOKING release event. The accounting entries are as follows:

*Table 16: Schedule*
NO.	RC ID	Line ID	Account Type	Currency	Dr	Cr	Period	Initial Reporting Entry Flag
1	3	301	Contract liability	USD	1200		Jan-19
2	3	301	Revenue	USD		1200	Jan-19
3	3	302	Contract Liability	USD	2400		Feb-19
4	3	302	Revenue	USD		2400	Feb-19
5	3	303	Contract Liability	USD	3600		Mar-19
6	3	303	Revenue	USD		3600	Mar-19
7	3	301	Adjustment Liability	USD		1200	Jan-19	Y
8	3	303	Adjustment Liability	USD	1200		Jan-19	Y
9	3	301	Adjustment Liability	USD	1200		Jan-19
10	3	301	Adjustment Revenue	USD		1200	Jan-19
11	3	303	Adjustment Liability	USD		1200	Mar-19
12	3	303	Adjustment Revenue	USD	1200		Mar-19

The revenue recognized at the end of January is 2400 (1200 contractual revenue + 1200 carve in revenue). The revenue recognized at the end of February is 4800 (1200 contractual revenue for the first period + 1200 carve-in revenue for the first Period + 2400 contractual revenue for the second period).

After the revenue has been recognized for two months, the RORD line is collected in the Mar-19 period with a blank impairment flag to cancel the third line of the contract. Based on the contract modification rule, it triggers prospective allocation for the revenue contract.

*Table 17: Impact of line item after change*
SO NO.	SO Line ID	Line Item	Ext. List Price	Ext. Sell Price	Start Date/th>	End Date	Unscheduled Adjustment
3001	301	Support	3600	1200	01-Jan-2019	31-Jan-2019	0
3001	302	Support	3600	2400	01-Feb-2019	28-Feb-2019	0
3001	303	Support	3600	3600	01-Mar-2019	31-Mar-2019	-1200

The carve-out amount of the canceled line becomes the impairment amount, which is left out in the revenue contract. It gives provision for you to do customization. The accounting entries that are created when the third line is canceled with the impairment flag being null are listed below:

*Table 18: Schedule after collection*
NO.	RC ID	Line ID	Account Type	Currency	Dr	Cr	Period
1	3	301	Contract Liability	USD	1200		Jan-19
2	3	301	Revenue	USD		1200	Jan-19
3	3	302	Contract Liability	USD	2400		Feb-19
4	3	302	Revenue	USD		2400	Feb-19
5	3	303	Contract Liability	USD	3600		Mar-19
6	3	303	Revenue	USD		3600	Mar-19
7	3	301	Adjustment Liability	USD		1200	Jan-19
8	3	303	Adjustment Liability	USD	1200		Jan-19
9	3	301	Adjustment Liability	USD	1200		Jan-19
10	3	301	Adjustment Revenue	USD		1200	Jan-19
13	3	303	Contract Liability	USD		1200	Mar-19
14	3	303	Revenue	USD	1200		Mar-19

The bottom two entries are created when the cancelation of the third line is collected with the blank impairment flag. The unposted allocation recognition entries are deleted, which are line 11 and 12 in Table 16.

R And R Within SSP

When the Impairment Type flag is R AND R WITHIN SSP, the impairment amount is kept as is and amortized over the term of the ripped contract. The ripped contract is closed for further linking. New POB cannot be collected for the ripped contract. Instead, the new POB will go to a new revenue contract.

Example 1 - Full impairment

In the following example, a revenue contract has three support lines and starts from January 1 to March 31, 2019. Each line lasts for a period of one month. These support lines are grouped into the same revenue contract based on the RC grouping template, which uses the sales order number as the grouping logic.

*Table 19: Sales order lines collected into Zuora Revenue*
SO NO.	SO Line ID	Line item	Ext. List Price	Ext. Sell Price	SSP %	Start Date	End Date
4001	401	Support	3600	1200	72	01-Jan-2019	31-Jan-2019
4001	402	Support	3600	2400	72	01-Feb-2019	28-Feb-2019
4001	403	Support	3600	3600	72	01-Mar-2019	31-Mar-2019

The initial entry for carves is created either at the time of schedule creation or at the time of billing when data is collected by Zuora Revenue. First, Ext. SSP Price for each line is calculated based on the following formula:

Ext. SSP Price = Ext. List Price * SSP %

*Table 20: Extended SSP price calculation*
SO NO.	SO Line ID	Line Item	Ext. List Price (A)	SSP % (B)	Ext. SSP Price (A*B/100)
4001	401	Support	3600	72	2592
4001	402	Support	3600	72	2592
4001	403	Support	3600	72	2592
Total					7776

Then, the RSP is calculated based on the following formula for each line:

RSP = Ext. SSP Price/Sum of Ext. SSP Price

The Allocated Price is calculated based on the following formula:

Allocated Price = Sum of Ext. Sell Price * RSP

The carve-in amount for the first line and the carve-out amount for the third line is derived.

*Table 21: Carves calculation*
SO NO.	SO Line ID	Line item	Ext. Sell Price (A)	Ext. SSP Price	RSP	Allocated Price (B)	Carves (B-A)
4001	401	Support	1200	2592	0.3333	2400	1200
4001	402	Support	2400	2592	0.3333	2400	0
4001	403	Support	3600	2592	0.3333	2400	-1200
Total			7200	7776

The revenue is scheduled based on the UPON BOOKING release event. The accounting entries are shown as follows.

*Table 22: Accounting entries*
NO.	RC ID	Line ID	Account Type	Currency	Dr	Cr	Period	Initial Reporting Entry Flag
1	4	401	Contract liability	USD	1200		Jan-19
2	4	401	Revenue	USD		1200	Jan-19
3	4	402	Contract liability	USD	2400		Feb-19
4	4	402	Revenue	USD		2400	Feb-19
5	4	403	Contract liability	USD	3600		Mar-19
6	4	403	Revenue	USD		3600	Mar-19
7	4	401	Adjustment Liability	USD		1200	Jan-19	Y
8	4	403	Adjustment Liability	USD	1200		Jan-19	Y
9	4	401	Adjustment Liability	USD	1200		Jan-19
10	4	401	Adjustment Revenue	USD		1200	Jan-19
11	4	403	Adjustment Liability	USD		1200	Mar-19
12	4	403	Adjustment Revenue	USD	1200		Mar-19

The revenue recognized at the end of January is 2400 (1200 contractual revenue + 1200 carve-in revenue). The revenue recognized at the end of February is 4800 (1200 contractual revenue for the 1st period + 1200 carve-in revenue for the 1st period + 2400 contractual revenue for the 2nd period).

After the revenue has been recognized for two months, the RORD line is collected in the Mar-19 period with the impairment flag being R AND R WITHIN SSP to cancel the third line of the contract. Based on the contract modification rule, it triggers prospective allocation for the revenue contract.

*Table 23: Impact of line item after change*
SO NO.	SO Line ID	Line item	Ext. List Price	Ext. Sell Price	Start Date	End Date	Unscheduled Adjustment
4001	401	Support	3600	1200	01-Jan-2019	31-Jan-2019	0
4001	402	Support	3600	2400	01-Feb-2019	28-Feb-2019	0
4001	403	Support	3600	3600	01-Mar-2019	31-Mar-2019	-1200

The adjustment amount remains the same. The carve-out amount of the canceled line becomes the impairment amount. The accounting entries that are created when the third line is canceled with the R AND R WITHIN SSP flag are shown as follows:

*Table 24: Schedule after collection*
NO.	RC ID	Line ID	Account Type	Currency	Dr	Cr	Period	Initial Reporting Entry Flag
1	4	401	Contract liability	USD	1200		Jan-19
2	4	401	Revenue	USD		1200	Jan-19
3	4	402	Contract liability	USD	2400		Feb-19
4	4	402	Revenue	USD		2400	Feb-19
5	4	403	Contract liability	USD	3600		Mar-19
6	4	403	Revenue	USD		3600	Mar-19
7	4	401	Adjustment Liability	USD		1200	Jan-19	Y
8	4	403	Adjustment Liability	USD	1200		Jan-19	Y
9	4	401	Adjustment Liability	USD	1200		Jan-19
10	4	401	Adjustment Revenue	USD		1200	Jan-19
11	4	403	Adjustment Liability	USD		1200	Mar-19
12	4	403	Adjustment Revenue	USD	1200		Mar-19
13	4	403	Contract Liability	USD		3600	Mar-19
14	4	403	Revenue	USD	3600		Mar-19

Example 2 - Partial impairment

In the following example, a revenue contract has three support lines and starts from January 1 to March 31, 2019. Each line lasts for a period of one month. These support lines are grouped into the same revenue contract based on the RC grouping template, which uses the sales order number as the grouping logic.

*Table 25: Sales order lines collected into Zuora Revenue*
SO NO.	SO Line ID	Line item	Ext. List Price	Ext. Sell Price	SSP %	Start Date	End Date
5001	501	Support	3600	1200	72	01-Jan-2019	31-Jan-2019
5001	502	Support	3600	2400	72	01-Feb-2019	28-Feb-2019
5001	503	Support	3600	3600	72	01-Mar-2019	31-Mar-2019

The initial entry for carves is created either at the time of schedule creation or at the time of billing when data is collected by Zuora Revenue. First, Ext. SSP Price for each line is calculated based on the following formula:

Ext. SSP Price = Ext. List Price * SSP %

*Table 26: Extended SSP price calculation*
SO NO.	SO Line ID	Line Item	Ext. List Price (A)	SSP % (B)	Ext. SSP Price (A*B/100)
5001	501	Support	3600	72	2592
5001	502	Support	3600	72	2592
5001	503	Support	3600	72	2592
Total					7776

Then, the RSP is calculated based on the following formula for each line:

RSP = Ext. SSP Price/Sum of Ext. SSP Price

The Allocated Price is calculated based on the following formula:

Allocated Price = Sum of Ext. Sell Price * RSP

The carve-in amount for the first line and the carve-out amount for the third line is derived.

*Table 27: Carves calculation*
SO NO.	SO Line ID	Line item	Ext. Sell Price (A)	Ext. SSP Price	RSP	Allocated Price (B)	Carves (B-A)	Released Revenue
5001	501	Support	1200	2592	0.3333	2400	1200	1000
5001	502	Support	2400	2592	0.3333	2400	0	2400
5001	503	Support	3600	2592	0.3333	2400	-1200	3600
Total			7200	7776

The revenue is scheduled based on the UPON BOOKING release event. The accounting entries are shown as follows.

*Table 28: Accounting entries*
NO.	RC ID	Line ID	Account Type	Currency	Dr	Cr	Period	Initial Reporting Entry Flag
1	5	501	Contract liability	USD	1200		Jan-19
2	5	501	Revenue	USD		1200	Jan-19
3	5	502	Contract liability	USD	2400		Feb-19
4	5	502	Revenue	USD		2400	Feb-19
5	5	503	Contract liability	USD	3600		Mar-19
6	5	503	Revenue	USD		3600	Mar-19
7	5	501	Adjustment Liability	USD		1200	Jan-19	Y
8	5	503	Adjustment Liability	USD	1200		Jan-19	Y
9	5	501	Adjustment Liability	USD	1200		Jan-19
10	5	501	Adjustment Revenue	USD		1200	Jan-19
11	5	503	Adjustment Liability	USD		1200	Mar-19
12	5	503	Adjustment Revenue	USD	1200		Mar-19

The revenue recognized at the end of January is 2400 (1200 contractual revenue + 1200 carve-in revenue). The revenue recognized at the end of February is 4800 (1200 contractual revenue for the 1st period + 1200 carve-in revenue for the 1st period + 2400 contractual revenue for the 2nd period).

After the revenue has been recognized for two months, the RORD line is collected for (-$200) in the Mar-19 period with the impairment flag being R AND R WITHIN SSP to partially cancel the first line of the contract. Based on the contract modification rule, it triggers prospective allocation for the revenue contract.

*Table 29: Impact of line item after change*
SO NO.	SO Line ID	Line item	Ext. List Price	Ext. Sell Price	Start Date	End Date	Carves (B)	Unscheduled Adjustment	Impairment Amount	Allocatable Ext. Price	Return Flag
5001	501	Support	3600	1000	01-Jan-2019	31-Jan-2019	-200	200	0	1000	N
5001	502	Support	3600	2400	01-Feb-2019	28-Feb-2019	0	0	0	2400	N
5001	503	Support	3600	3600	01-Mar-2019	31-Mar-2019	200	-1200	-1000	0	Y

The adjustment amount remains the same. The accounting entries that are created when the third line is canceled with the R AND R WITHIN SSP flag are shown as follows:

*Table 30: Schedule after collection*
NO.	RC ID	Line ID	Account Type	Currency	Dr	Cr	Period	Schedule Type
1	5	501	Contract Liability	USD	1000		Jan-19	Revenue
2	5	501	Revenue	USD		1000	Jan-19	Revenue
3	5	502	Contract Liability	USD	2400		Feb-19	Revenue
4	5	502	Revenue	USD		2400	Feb-19	Revenue
5	5	503	Contract Liability	USD	3600		Mar-19	Revenue
6	5	503	Revenue	USD		3600	Mar-19	Revenue
7	5	501	Adjustment Liability	USD		1200	Jan-19	Adjustment
8	5	503	Adjustment Liability	USD	1200		Jan-19	Adjustment
9	5	501	Adjustment Liability	USD	1000		Jan-19	Adjustment
10	5	501	Adjustment Revenue	USD		1000	Jan-19	Adjustment
13	5	503	Contract Liability	USD		3600	Mar-19	Revenue
14	5	503	Revenue	USD	3600		Mar-19	Revenue
15	5	503	Adjustment Liability	USD		1000	Mar-19	Impairment
16	5	503	Contract Impairment	USD	1000		Mar-19	Impairment
17	5	503	Adjustment Liability	USD		200	Mar-19	Adjustment
18	5	501	Adjustment Liability	USD	200		Mar-19	Adjustment

New POB Immediate

When the Impairment Flag value is NEW POB IMMEDIATE, a new line is created with a POB as impairment for the impairment amount. The new line captures all the characteristics of the canceled line. Revenue of the impairment amount is recognized based on the start date and end date of the canceled line and the trigger for revenue release is Upon Booking.

In the following example, the three support lines are grouped into the same revenue contract based on the RC grouping template, which uses the sales order number as the grouping logic.

*Table 31: Lines collected into Zuora Revenue*
SO NO.	SO Line ID	Line Item	Ext. List Price	Ext. Sell Price	SSP %	Start Date	End Date
6001	601	Support	3600	1200	72	01-Jan-2019	30-Jun-2019
6001	602	Support	3600	2400	72	01-Jul-2019	31-Dec-2019
6001	603	Support	3600	3600	72	01-Jan-2020	30-Jun-2020

The initial entry for carves is created either at the time of schedule creation or at the time of billing when data is collected by Zuora Revenue. First, Ext. SSP Price for each line is calculated based on the following formula:

Ext. SSP Price = Ext. List Price * SSP %

*Table 32: Extended SSP price calculation*
SO NO.	SO Line ID	Line Item	Ext. List Price (A)	SSP % (B)	Ext. SSP Price (A*B/100)
6001	601	Support	3600	72	2592
6001	602	Support	3600	72	2592
6001	603	Support	3600	72	2592

Then, the RSP is calculated based on the following formula for each line:

RSP = Ext. SSP Price/Sum of Ext. SSP Price

The Allocated Price is calculated based on the following formula:

Allocated Price = Sum of Ext. Sell Price * RSP

The carve-in amount for the first line and the carve-out amount for the third line are derived.

*Table 33: Carves calculation*
SO NO.	SO Line NO.	Line Item	Ext. Sell Price (A)	Ext. SSP Price	RSP	Allocated Price (B)	Carves (B-A)
6001	601	Support	1200	2592	0.3333	2400	1200
6001	602	Support	2400	2592	0.3333	2400	0
6001	603	Support	3600	2592	0.3333	2400	-1200
Total			7200	7776

The revenue is scheduled based on the UPON BOOKING release event. The accounting entries are listed as follows:

*Table 34: Schedule*
NO.	RC ID	Line ID	Account Type	Currency	Dr	Cr	Period	Initial Reporting Entry Flag
1	6	601	Contract liability	USD	200		Jan-19
2	6	601	Revenue	USD		200	Jan-19
3	6	601	Contract liability	USD	200		Feb-19
4	6	601	Revenue	USD		200	Feb-19
5	6	601	Contract liability	USD	200		Mar-19
6	6	601	Revenue	USD		200	Mar-19
7	6	601	Contract liability	USD	200		Apr-19
8	6	601	Revenue	USD		200	Apr-19
9	6	601	Contract liability	USD	200		May-19
10	6	601	Revenue	USD		200	May-19
11	6	601	Contract liability	USD	200		Jun-19
12	6	601	Revenue	USD		200	Jun-19
13	6	602	Contract liability	USD	400		Jul-19
14	6	602	Revenue	USD		400	Jul-19
15	6	602	Contract liability	USD	400		Aug-19
16	6	602	Revenue	USD		400	Aug-19
17	6	602	Contract liability	USD	400		Sep-19
18	6	602	Revenue	USD		400	Sep-19
19	6	602	Contract liability	USD	400		Oct-19
20	6	602	Revenue	USD		400	Oct-19
21	6	602	Contract liability	USD	400		Nov-19
22	6	602	Revenue	USD		400	Nov-19
23	6	602	Contract liability	USD	400		Dec-19
24	6	602	Revenue	USD		400	Dec-19
25	6	603	Contract liability	USD	600		Jan-20
26	6	603	Revenue	USD		600	Jan-20
27	6	603	Contract liability	USD	600		Feb-20
28	6	603	Revenue	USD		600	Feb-20
29	6	603	Contract liability	USD	600		Mar-20
30	6	603	Revenue	USD		600	Mar-20
31	6	603	Contract liability	USD	600		Apr-20
32	6	603	Revenue	USD		600	Apr-20
33	6	603	Contract liability	USD	600		May-20
34	6	603	Revenue	USD		600	May-20
35	6	603	Contract liability	USD	600		Jun-20
36	6	603	Revenue	USD		600	Jun-20
37	6	601	Adjustment Liability	USD		1200	Jan-19	Y
38	6	603	Adjustment Liability	USD	1200		Jan-19	Y
39	6	601	Adjustment Liability	USD	200		Jan-19
40	6	601	Adjustment Revenue	USD		200	Jan-19
41	6	601	Adjustment Liability	USD	200		Feb-19
42	6	601	Adjustment Revenue	USD		200	Feb-19
43	6	601	Adjustment Liability	USD	200		Mar-19
44	6	601	Adjustment Revenue	USD		200	Mar-19
45	6	601	Adjustment Liability	USD	200		Apr-19
46	6	601	Adjustment Revenue	USD		200	Apr-19
47	6	601	Adjustment Liability	USD	200		May-19
48	6	601	Adjustment Revenue	USD		200	May-19
49	6	601	Adjustment Liability	USD	200		Jun-19
50	6	601	Adjustment Revenue	USD		200	Jun-19
52	6	603	Adjustment Liability	USD		200	Feb-20
53	6	603	Adjustment Revenue	USD	200		Feb-20
54	6	603	Adjustment Liability	USD		200	Mar-20
55	6	603	Adjustment Revenue	USD	200		Mar-20
56	6	603	Adjustment Liability	USD		200	Apr-20
57	6	603	Adjustment Revenue	USD	200		Apr-20
58	6	603	Adjustment Liability	USD		200	May-20
59	6	603	Adjustment Revenue	USD	200		May-20
60	6	603	Adjustment Liability	USD		200	Jun-20
61	6	603	Adjustment Revenue	USD	200		Jun-20

The revenue recognized for the first line is 2400 (1200 contractual revenue + 1200 carve in revenue) from January to June 2019. The revenue recognized for the second line is 2400 ( 2400 contractual revenue of the second line) from July to December 2019.

After the revenue has been recognized for 2019, the RORD line is collected in the Jan-20 period with the impairment flag being NEW POB IMMEDIATE to cancel the third line of the contract. Based on the contract modification rule, it triggers prospective allocation for the revenue contract.

*Table 35: Impact of line item after change*
SO NO.	SO Line ID	Line item	Ext. List Price	Ext. Sell Price	Start Date	End Date	Unscheduled Adjustment	Impairment Amount
6001	601	Support	3600	1200	01-Jan-2019	30-Jun-2019	0	0
6001	602	Support	3600	2400	01-Jul-2019	31-Dec-2019	0	0
6001	603	Support	3600	3600	01-Jan-2020	30-Jun-2020	-1200	0
6001	604		0	0	01-Jan-2020	30-Jun-2020	0	-1200

The carve-out amount of the canceled line becomes the impairment amount. A new line is created for that amount with impairment as its POB. The impairment amount is recognized immediately. See the table below for the accounting entries created when the third line is canceled with the impairment flag being NEW POB IMMEDIATE.

*Table 36: Schedule after collection*
NO.	RC ID	Line ID	Account Type	Currency	Dr	Cr	Period
1	6	603	Contract Liability	USD		200	Jan-20
2	6	603	Revenue	USD	200		Jan-20
3	6	603	Contract Liability	USD		200	Feb-20
4	6	603	Revenue	USD	200		Feb-20
5	6	603	Contract Liability	USD		200	Mar-20
6	6	603	Revenue	USD	200		Mar-20
7	6	603	Contract Liability	USD		200	Apr-20
8	6	603	Revenue	USD	200		Apr-20
9	6	603	Contract Liability	USD		200	May-20
10	6	603	Revenue	USD	200		May-20
11	6	603	Contract Liability	USD		200	Jun-20
12	6	603	Revenue	USD	200		Jun-20
13	6	603	Adjustment Liability	USD		1200	Jan-20
14	6	603	Contract Impairment	USD	1200		Jan-20
15	6	604	Contract Impairment	USD		1200	Jan-20
16	6	604	Adjustment Liability	USD	1200		Jan-20
17	6	604	Adjustment Liability	USD		1200	Jan-20
18	6	604	Adjustment Revenue	USD	1200		Jan-20

New entries are created when the cancelation of the third line is collected with the NEW POB IMMEDIATE impairment type flag. The unposted allocation recognition entries are deleted.

The impairment amount that gets debited in the canceled line and subsequently credited to the new line is moved to the adjustment liability account and then to the adjustment revenue account. The new POB created with the new line has the name of IMPAIRMENT, which is a seeded POB. The revenue for the impairment POB is recognized based on the start date and end date of the canceled line.