R12 Assets Depreciation Calculations With Examples

1.  How Depreciation Is Calculated With Monthly Depreciation Calendar, Daily Prorate Convention And Even Depreciation Distribution?

A.

The depreciation calculation of this particular setup is explained with this example:

The setup of the depreciation book is as follows:

- Monthly depreciation calendar
- Daily prorate calendar
- Depreciation distribution: Even

The asset is created as follows:

- Date placed in service (DPIS): 15-JAN-2002
- Prorate convention: Daily, Prorate Date: 15-JAN-2002
- Cost: 60000, Depreciation method/life: STL 5 years
- Current open FA period: Jan-02

First we must calculate, based on remaining days in the first year, the charge for this year:

From 15th January to 31 December there are 351 days. Thus the charge for 2002 will be 60000 divided by 5 years (12000 per year). 2002 has 351 days left so the calculation is:

12000/365*351 = 11539.73

Then we can calculate the period depreciation:

The normal 'even' monthly charge would be 12000/12 months or 1000 each month from February through December (11000). This leaves for 2002 charge the calculated 11539.73 less 11 months at 1000. The charge for Jan 2002 = 539.73 (calculation: 11539.73 - 11000 = 539.73)

2.  How To Calculate Depreciation Using Daily Prorate Convention, Monthly Depreciation Calendar And Even Allocation?

A.

Daily Prorate convention
Monthly Depreciation Calendar
Divide Depreciation Flag = E
Current period is JAN-2009 (the first period of the current fiscal year)
Fiscal Year is January to December
Asset's DPIS and Prorate Date are 1/31/09
Cost is $50000
Depreciation Rate 40%
Asset is added without reserve
Depreciation Method = Flat NBV method with Use Fiscal Year Begining Basis

The expected depreciation calculation might at first appear to be:

50000 * .4 / 12 divided by the days in the month (evenly divided in this case) = 54.79

This is incorrect. The actual depreciation calculation for the asset in the period of addition follows:

A normal month would charge 50000 * .4 / 12 = 1666.67 divided by the number of days in the month. However, in this example, the fiscal year ends 31-DEC-09. So, the current fiscal year has 335 days from DPIS to year end (i.e., 31-JAN-09 to 31-DEC-09).

Thus, the depreciation calculation for this fiscal year is:
50000 * .4 / 365 * 335 = 18356.16

Thus, for the remaining full months, the calculation is (FEB-09 through DEC-09):

11 * 1666.67 = 18333.33

The depreciation amount for the asset in the period of addition (JAN-09) will be 18356.16 less 18333.33 = 22.83 (not 54.79).

3.  How Is Depreciation Calculated For Flat NBV Method With Use Transaction Period Basis Rule?

A.

Here is an example:
-Asset added in period November 2006
-DPIS = 01-JUN-2006
-Cost=6000
-Monthly depreciation calendar
-Depreciation spread Evenly
-Daily Prorate calendar and convention
-Depreciation Method: FLAT NBV with rate=0.2589 and 'Use Transaction Period Basis' rule.

A normal month would charge 6000* .2589 /12 = 129.45

Fiscal year ends in Mar-07
i.e. the current fiscal year has 304 days from DPIS to year end ( i.e. 01-jun-06 to 31-mar-07)

So calculation needs to be for this fiscal year:
6000 * .2589 /365*304 = 1293.79

thus for the remaining full months the charge is (July 06 to Mar 07) : 9* 129.45 = 1165.05

thus charge for period of addition needs to be 1293.79 less 1165.05 = 128.74

Then Depreciation amount for November-06 is:
Jun-06 128.74
Jul-06 to Nov-06= 129.45 * 5 = 647.25
Total= 775.99

Therefore at the end of FY , accumulated depreciation will be :1293.79
and depreciable basis for following Fiscal Year will be :
Use Transaction Period Basis = (Cost – Salvage Value) – Accumulated Depreciation
= 6000 - 1293.79 = 4706.21

4.  How To Charge 100% Depreciation In The Period Of Addition When Depreciation Is Divided By Days?

A

Defined the Depreciation Method as following:
Method Type : Straight Line
Calculation Basis : Cost
Depreciate in Year Retired Check Box :checked
Life in Years : 0 Years & 1 Month
Depreciation is divided by days in the Book controls form .
Prorate convention should be defined like below

01-APR-2003          30-APR-2003        01-MAR-2003
01-MAY-2003         31-MAY-2003      01-APR-2003

What this prorate convention does is it forces the calculation to start from last month and for the current month it will take last month's calculated amount and the present month's left over and puts the Total amount in the current period.

Thus asset is depreciated to the extend of 100% in the period of addition.

5.  How Is Depreciation Calculated After Upload As Amortized And Table-Based Method?

A.

Original Cost = 1186424.21
Reserve = 953541.65
DPIS = 01-NOV-1989
Life in Months = 348
Amortization Start Date = 01-JUL-2007 in current open period.

then NBV = 232882.56
and the application will amortize NBV over remaining life starting in the current period.

The prorate date is 01-DEC-1989
From the calendar , prorate date 01-DEC-1989 falls into following period:

PERIOD_NAME           PERIOD_NUM          START_DATE              END_DATE
   1-90                               1                              01-DEC-1989               31-DEC-1989

The asset was placed in service in year 1989 then 2007 is 19th year and rate for period num 1 and year 19 is 0.034483

Then calculation for current period will be :
adjusted cost * rate /RAF/12
= 232882.56 *0.034483 /.23076954911/12=2899.89

After an amortized adjustment, the depreciation amount is adjusted by a Rate Adjustment Factor which allocates amortized change over the remaining life. The RAF is not visible via the forms but can be viewed in an asset trace.

Formula for the Rate Adjustment Factor is:
(New Recoverable Cost - Recalculated Depreciation Reserve)/New Recoverable Cost

6.  How is Depreciation Back-Out Calculated For Backdated Retirement With Daily Prorate Convention and Even Depreciation Distribution?

A.

Here is an example:
-Asset added in period September 2006 with DPIS =15-MAR-2006
-Prorate convention: Daily then Prorate Date =15-MAR-2006
-Cost=16561
-Depreciation Method/Life = STL 4 years

Book is defined with Evenly depreciation therefore annual depreciation amount is of 4140.25
and monthly depreciation amount of 345.02 .

Depreciation was calculated until the end of October when Full Retirement is entered with date retired = 20-AUG-2006

We have to reverse depreciation calculated between 20-AUG-2006 and 31-0CT-2006

Prorate periods to reverse :
20-AUG to 31-AUG=12
SEP = 30
OCT = 31
Total =12+30+31=73

During these 3 months (31+30+31=92 prorate periods ) depreciation calculated was 345.02 *3
Therefore , depreciation to reverse will be: 345.02 *3*73/92=821.3

7.  How Oracle Assets Calculates Depreciation For Divide By Days Option for Leap Years?

A.

Consider the following Setup .

Depreciation Calendar: Monthly,
Prorate Calendar : 365 periods -
Daily Prorate convention: Same day.
Depreciation Method : Life Based .

Case: 1

prorate date: 02-JUN-2002
life in months: 24
prorate period number: 153
prorate fy: 2002
number of periods in deprn Calendar: 12
number of periods in prorate calendar: 365
l_last_per: 152 (Unexpired Prorate Periods in the last Year)
l_last_fy: 2003 (Last Fiscal Year)
l_last_fy(2): 2004 (Last Fiscal Year 2Since asset spanning in 2 years)
l_pds_in_last_yr: 5 (Last Period in Last Year)
current period counter = 24059 (End Result example)
last period counter fully reserved = 24053 (End Result example)

Case: 2

prorate date: 02-SEP-2002
life in months: 24
prorate period num: 245
prorate fy: 2002
number of periods in deprn Calendar: 12
number of periods in prorate calendar: 365
l_last_per: 244 (Unexpired Prorate Periods in the last Year)
l_last_fy: 2003 (Last Fiscal Year)
l_last_fy(2): 2004 (Last Fiscal Year 2 Since asset spanning in 2 years)
l_pds_in_last_yr: 9 (Last Period in Last Year)
current period counter = 24059 (End Result example)
last period counter fully reserved = 24057 (End Result example)

NOTE: The key to the whole calculation is the derivation of the l_pds_in_last_yr value

Just to break it down for both assets:

l_pds_in_last_yr :=
ceil ((l_dep_periods * l_last_per) /
l_prorate_periods);

102711: ((12 * 152) / 365) = 4.997260274
102713: ((12 * 244) / 365) = 8.021917808

Since Ciel function is used any decimal values will be rounded to next number.

It follows the following formula .

l_pds_in_last_yr := ceil ((l_dep_periods * l_last_per) / (l_prorate_periods);

This is nothing but

Last period in the last Year = Ceil (No. of Depreciation periods * (No. of
Unexpired Prorate Period / Total No. of Prorate Periods))

Following is the calculation for the Assets referred .

Case 1: ((12 * 152) / 365) = 4.997260274
Case 2: ((12 * 244) / 365) = 8.021917808

Here any decimal periods are rounded to next period.

8.  How Is Depreciation And Bonus Depreciation Calculated For An Asset With Table-Based Depreciation Method?

A.

Bonus Rule: Year1 -20%
Method: DEG_LIN M table based on NBV
Jan to Dec calendar
Monthly prorate convention
DPIS: 01-APR-2007
Period of addition: Nov-07

Cost: 4522
Depreciation amount catchup: 4522 * .225 / 9 * 7 (Apr to Oct) = 791.35
Nov-07 depreciation: catchup + amount: 4522 * .225 / 9 = 113.05 = 904.39
Dec-07 depreciation: amount: 4522 * .225 / 9 = 113.05

Bonus amount catchup: 4522 * .2 / 12 * 7 (Apr to Oct) = 527.57
Nov-07 Bonus depreciation: Bonus amount catchup + bonus amount: 4522 * .2 / 12 = 75.37 = 602.94
Dec-07 Bonus depreciation: bonus amount: 4522 * .2 / 12 = 75.36

Displayed as:

Nov-07: 904.39 + 602.94 = 1507.33, ytd depreciation and depreciation reserve: 1507.33
Dec-07: 113.05 + 75.36 = 188.42, ytd depreciation and depreciation reserve: 1695.75

See also the Oracle Assets User Guide Release 11i, page 5-55:
'Bonus Depreciation
The bonus rate is applied based on either the cost or on the nbv following the depreciation method
calculation basis. That is, the bonus rate is based on the asset cost for straight-line, but on
the nbv for flat rate methods using nbv as the calculation basis:

Bonus Expense = Depreciable Basis * Bonus Rate

You can also set up Oracle Assets to charge bonus reserve to an account that is different from the
normal accumulated depreciation expense.'

As the depreciable basis in year 1 is still cost as NBV is still = cost, the system uses for both
regular and bonus depreciation the cost of 4522.
In Jan-08 that will change for both the regular and the depreciation amount and the depreciable
basis will be NBV 2826.25

expected Jan-08 depreciation:

regular depreciation: 2826.25 * .3 / 12 = 70.66
bonus depreciation: 2826.25 * .225 / 12 = 47.1
total: 70.66 + 47.1 = 117.76


The yearly depreciation on the table-based rule is calculated on the cost and divided over the
remaining months in the year, while the bonus depreciation is calculated as cost (ie NBV) over 12
periods. Both the regular and the bonus amounts are displayed as a sum under the monthly
depreciation.

9.  How Is Depreciation Calculated For An Asset With Recoverable Cost Depreciation Basis Rule And Monthly Depreciation Calendar And Daily Prorate Convention?

A.

Cost 63717.50
DPIS: 31-DEC-2006
Method: 20% flat on cost, recoverable cost depreciable basis rule

Depreciation: Monthly Calendar, Monthly Prorate (differs from default for this book) By days
Prorate Convention: COS_MONTH which has Depreciate when acquired flag = YES ie 31st Dec not 1st

Thus depreciation is based on full months but spread by days.
Annual charge is 63717.5 * .2 = 12743.90

However there are only 335 days in the year from 31-Dec to 30-Nov
So, depreciation = 12743.90/335 * no of days in each individual period.

Period                        days           Charge                          Cumulative

December                   1               38.03                                38.03
January                      31              1179.25                            1217.28
February                   28               1065.13                           2282.41
March                       31               1179.25                           3461.66
April                         30               1141.21                            4602.87
May                          31               1179.25                            5782.12
June                          30               1141.21                            6923.33
July                           31               1179.25                            8102.58
August                      31               1179.25                            9281.83
September                30               1141.21                            10423.04
October                    31               1179.25                            11602.29
November              30                  1141.21                              12743.5
                              ----                        -------
                              335                 12743.5

If the Depreciate When Date Placed In Service checkbox on the Prorate Convention would have been
set to No, then we believe you would have gotten the result you expected.

10.  How Is Depreciation Calculated With Monthly Depreciation Calendar, Daily Prorate Convention And Daily Depreciation Distribution And Daily Prorate Calendar?

A.

cost 48,000
life of 48 months.
DPIS of 01/02/02.
Jan-02 is the first period of the fiscal year and Dec-02 is the last

As per the normal expectation feb-02 depreciation should be 1000. However system calculated the 980.82 for Feb-02 which is calculated as follows

We know Jan-02 is p1, and Dec-02 is p12.
We also know that 12,000 depreciation is expected per year.

For this asset, max expected depreciation THIS YEAR is 11/12 * 12,000 = 11,000,
since it has 11 months to run .
However, the daily prorate calendar setting of 'By Days' ensures that the days
make a difference here.
The number of days left in the year = 365 - 31 (Jan-02) = 334.
Thus the total amount of depreciation in the first YEAR will be
334/365 * 12,000 = 10,980.82.

We know that each of the successive 10 months will require 1,000 depreciation
each, so:
10,980.82 - (10 * 1,000) = 980.92.
This equals the depreciation calculated for the February month for this asset

Difference Between Original Cost, Salvage Cost,Net Book Value and Recoverable Cost.

1-The original cost is the amount of money the asset originally costs. This amount may suffer modifications (adjustments) when, for example, you buy an asset for a certain cost but you have to pay other expenses to put it working.

2-   The recoverable cost is the portion of the current cost that can be depreciated. It is the current cost less the salvage value less the Investment Tax Credit basis reduction amount. If you specify a depreciation cost ceiling, and if the recoverable cost is greater than that ceiling, Oracle Assets uses the cost ceiling instead.

3-   The net book value is defined as: Net Book Value = Current Cost – Total Reserve (Accumulated Depreciation + Bonus Reserve)

4-   You can specify a salvage value as a percentage of an asset’s acquisition cost or as an amount. The percentage salvage value will be defaulted from the category default rules if you have default the salvage value percentage at the category level in the Asset Categories window. The salvage value is calculated by multiplying the acquisition cost by the default salvage value percentage. Then you can define a default percentage salvage value at the category level in the Asset Categories window. Oracle Assets calculates the salvage value by multiplying the acquisition cost by the default salvage value percentage for the category, book, and date placed in service. If you specify the salvage value as an amount, you simply enter the amount.

Introduction to Oracle E-Business Suite (EBS)

Introduction

 

Oracle E-Business Suite (EBS) version 12 is an internet enabled product that can be managed from a single site. A company can operate a single data center with a single database, similar to other ERP products. This release was launched in February 2007 and contains a number of product lines which users can implement for their business. Oracle EBS includes the company’s enterprise resource planning (ERP) product as well as supply chain management (SCM) and customer relationship management (CRM) applications. Each application is licensed separately so companies can select the combination that is suitable for their business processes

The applications found in the Oracle EBS include:

• Oracle CRM
• Oracle Financials
• Oracle Human Resource Management System (HRMS)
• Oracle Logistics
• Oracle Supply Chain Applications
• Oracle Order Management
• Oracle Transportation Management
• Oracle Warehouse Management System
•  

Oracle CRM

The Oracle CRM application provides the "front office" functions which help a business to increase customers and customer loyalty and satisfaction. The basic functionality includes marketing, order capture, contracts, field service, spares management and the call center functionality. The CRM application also includes internet focused products such as catalogs, content management, quote and order management.

Oracle Financials 

 

The Financials applications include General Ledger, Cash Management, Payables, Receivables, Fixed Assets, Treasury, Property Management, Financial Analyzer and a self-service expenses function.

Oracle Human Resource Management System (HRMS) 

 

The HRMS application helps companies manage the recruit-to-retire process. The application gives users a real-time view of all the HR activities, including recruiting, time management, training, compensation, benefits and payroll. The HRMS suite integrates fully with the other EBS applications and supplies the users with an analytics package that allows the extraction of HR data with ease.

Oracle Logistics 

 

The logistics module allows users to plan, manage, and control the flow and storage of products and services within a business. It provides information to plan future demand and safety stock within the warehouse. The application can create detailed, constraint-based production schedules and material plans.

Oracle Supply Chain Applications 

 

Supply chain applications powers a businesses information-driven supply chains. Companies can predict market requirements, innovate in response to volatile market conditions, and align operations across global networks. Oracle offers industry-specific solutions that includes product development, demand management, sales and operations planning, transportation management, and supply management.

Oracle Order Management 

 

Order management applications can streamline and automate a business’s entire sales order management process, from order promising and order capture to transportation and shipment. Order management also includes EDI, XML, telesales and web storefronts. Some of the business benefits that can be achieved include reduced fulfillment costs, reduced order fulfillment cycle time, increased order accuracy and greater on-time delivery.

Oracle Transportation Management 

 

Transportation management (TMS) provides transportation planning and execution capabilities to shippers and third party logistics providers. It integrates and streamlines transportation planning, execution and freight payment. The TMS function delivers functionality for all modes of transportation, from full truckload to complex air, ocean, and rail shipments. The benefits of the TMS function include reduced transportation costs, improved customer service and greater asset utilization
.

Oracle Warehouse Management System 

 

Oracle’s Warehouse Management System allows the coordinated movement of goods and information throughout the extended distribution process. The module provides business processes that can deliver efficient utilization of employees, equipment, and space in the distribution process. Benefits include an acceleration of the flow of products through the supply chain while reducing lead times and releasing working capital, real time inventory management, cross-docking, pick-by-line, advanced ship notices (ASN), inbound planning and yard management.

Oracle R12 Advanced Pricing in Purchasing

In order to utilize advanced pricing with the purchasing application, the value of the profile option must be set as shown :

Navigate to the Purchasing Responsibility : Purchasing Vision Operations (USA) and open the Item Master form. Select the copy from feature from the Tools menu as shown below :

Select the Item CM96713 as the Item from which the data is to be copied as seen in the following screenshot :

Click the Done button and then choose a name for the newly created item. Go to the purchasing tab to the Purchasing tab to confirm that the item is purchasable. Also note that the item list price (which should default on all purchasing documents) is 0.006 as seen in the following screenshot :

The next step of the required setup is to create a Contract Purchase Agreement which will later be linked to the item ASL entry. To do this, navigate to the Purchase Orders form and enter a new Contract as seen below :

Approve the Contract and then navigate to the Sourcing Rules form and create anew rule for the item using the seeded supplier and site shown below :

The newly created Sourcing Rule can now be assigned to the Item using the Sourcing Rule Assignments form as seen in the following screenshot :

Navigate to the Approved Supplier List form and create a new entry for the item associating it to the same supplier and site as show below :

Click the Attributes button and select the approved Contract created earlier as shown in the following screenshot :

Navigate to the Price Lists form under the Advanced Pricing menu and create a new price list entry. Specify the Item as shown below :

Specify a new Item price in the price list :

The price specified on the price list should take precedence over the list price defined in the Item Master form. To test this, navigate to the Requisitions form and create a new Purchase Requisition and select the Item from the LOV. The supplier/site specified in the sourcing rule should automatically default and the price should default from the price list as shown below :

Navigate to the Source Details tab to confirm that the Contract linked to the Approved Supplier List has been linked to the Requisition as seen in the following screenshot :

Purchase Orders work a little differently. Navigate to the Purchase Orders form and create a new Standard Purchase Order for the same supplier and site. Select the Item and notice that the price does not default from the price list and instead defaults from the Item Master form as shown below :

This happens because the Contract information does not automatically default on to the Purchase Order. Go to the Reference Documents tab and manually associate the Contract as shown in the following screenshot :

Now navigate back to the Line tab and the price has been correctly updated from the price list as shown below :

Modifiers can also be used to modify the Item price on the price list by adding a surcharge or discount to the original price. To add a surcharge, navigate to the Modifiers form and specify the modifier and pricing phase as shown below :

Specify the amount of surcharge to be added to the original price as shown in the following screenshot :

Note that no qualifier has been chosen for this modifier which means that the surcharge specified will be applied to all items being purchased. In order to control which conditions cause the surcharge to be applied (eg specific Items only), a Line Qualifier would need to be created for this Modifier.

To test that the surcharge is applied correctly, create a new Purchase Requisition and select the Item as shown below :

Customer Acceptance: New Feature of R12 Oracle Apps

In Oracle functionality of standard sales order the Account receivable invoice is raised as an when the sales order is shipped in OM module. And if end customer finds the goods not acceptable then a RMA is created in system to cancel the previous transaction. This process works fine but has its own overheads of multiple transaction entry and admin overhead. Customers in some industries have a need to defer invoicing and/or revenue recognition for shipped goods until their end customer receives the shipment and formally accepts the material. Specifically most of Japanese customers do have this specific need.In this post I will discuss about this new feature as well as will try to understand the key setup involved.

 Till 11i Oracle was not having this option but in Oracle R12 Customer acceptance/rejection can be captured from customers, customer service representatives, or from an external system. With the Introduction of Customer Acceptance feature in Release 12, the order fulfilment flow now has an additional step called “customer acceptance”, where customer accepts the goods either before or after billing happens.

This feature enables customer to defer invoicing and/or revenue recognition for the shipped goods till the customer receives the shipment and accepts the material.

Oracle has broadly classified the acceptance in two categories.  One is called explicit acceptance and another one is called as implicit Acceptance. In Explicit acceptance customers or their representative can perform the acceptance by log into the self-service Order Information portal or through import API or recording the same in sales order form. In number of cases these confirmation come through phone or email acknowledgement and acceptance is recorded by sales representative in sales order form. In implicit acceptance an expiration period is pre defined and after the expiration period is over a concurrent request is submitted in oracle to complete the acceptance process.

Oracle Order Management supports only full acceptance or total rejection for each outbound order line.
With the introduction of Customer acceptance, Oracle Order Management process flows are now categorized in two categories.

1 Pre Billing Acceptance: Invoices will only be interfaced to AR once the acceptance is recorded (explicit or implicit)

2. Post Billing Acceptance: Invoices are created but revenue will be recognized after acceptance is recorded. (Explicit or implicit)
By default this feature will come as DISABLED and Oracle provide the option to enable this functionality.

Key Setup

1. Enabling of the fulfilment Acceptance at the Order
OMsystem parameter “Enable Fulfilment Acceptance” (New in R12) at Operating Unit level needs to be enabled by setting its value as ‘Yes’
2. Modify function security for a given responsibility by adding two functions:
a. Sales Orders: Fulfilment Acceptance – This attribute will be available in the Actions LOV.
b. Sales Orders: Update Acceptance Attributes – This should be attached in sales order menu – XXX_ONT_ Sales_Order.
3. Deferral reason setup

This can be done through Revenue Management Super User- Contingency Definition.
For Prebilling deferral reason ‘removal event’ should be specified as ‘Invoicing’ and for postbilling deferral reason the ‘removal event’ should be specified as ‘customer acceptance’.

For a deferral reason to be implicit, we need to specify the optional “Time attribute” fields.OM supports only Ship Confirm date as the Event attribute. The Days added to Event Attribute gets defaulted as Acceptance Expire days inSales Order Line.
Define assignment rules is used to assign the deferral reason to customer, site, item, etc. and The deferral reason defined in AR’s Revenue Management setup page is actually used as Acceptance Name in Order Management

Deferred COGS: How to use this feature of Oracle Apps R12

Finally a relief for all the accounting users who had problems working with oracle apps due to period mismatch of revenue and cost recognition. Generally the orders which are shipped on the last day of month have this issue. As most of you know that till release 11i, the value of good shipped is expensed to COGS when the material in ship confirmed in shipping and revenue will get recognized after the invoices are generated in AR and revenue recognition is done. The problem that accountants face with this design is that on the last day of month COGS gets recognized when we ship confirm the material but invoice gets generated in next month and so revenue gets recognized in different month. This does not look good from the matching principle which requires the revenue and cost should get recognized in the same period.

The deferred COGS account is the new feature introduced in Release 12. The key fundamental behind the feature is that the COGS is now directly matched to the Revenue. In simple terms, this means, COGS for an order line will be recognized only if the revenue is recognized for that line making sure that the revenue and COGS are posted in the same month. Matching percentage is also taken care which ensures that revenue and cost are always in sync.

Setup: Only one key setup involved for this functionality is to define the Defer COGS account.

Navigation: Inventory à Setup à Organization à Parameters à Other Accounts

Business Process:
In R11i When a Sales order is shipped and interface trip stop is completed. This make a call to COGS workflow to generate the COGS account. This then generate following accounting.

Cr                    Inventory Valuation account $250
          Dr         COGS Account                                 $250

In R12 when a sales order is shipped and interface trip stop is completed the following accounting entries gets generated.

Cr                    Inventory Valuation account           $250
           Dr         Deferred COGS Account                            $250

After the AR invoice is generated and the revenue is recognized (Considering you don’t have revenue recognition policies or specific accounting rules), following program will create COGS recognition transaction. This will reflect a change in the revenue recognition percentage for a sales order line.

1. Collect Revenue Recognition Information program: This program will collect the change in revenue recognition percentage based on AR events within the user specified date range. It collects invoice information of the sale order line from RA_CUST_TRX_LINES_ALL and RA_CUST_TRX_LINE_GL_DIST_ALL after the revenue is recognized and check the percentage revenue recognized. It then insert information in CST_REVENUE_RECOGNITION_LINE.

 Navigation: Cost > COGS Recognition > Collect Revenue Recognition Information

 2. Generate COGS Recognition Events: This program will create the COGS recognition transaction for each sales order line where there is a mismatch between the latest revenue recognition percentage and the current COGS recognition percentage. This is the program which also makes the transactions costed by creating these accounting entries. So cost manager is not used to make these transactions as costed in R12.The COGS account in this entry is taken from the distribution_account in mtl_material_transactions table (which was generated earlier by COGS workflow).

  Cr                   Deferred account                       $250 (Actual Revenue %)
            Dr         COGS Account                           $250 (Actual Revenue %)

Navigation: Cost > COGS Recognition > Generate COGS Recognition Events
This particular COGS recognition transaction actually correspond to a revenue recognition percentage change.
As we have seen above this new feature does help in resolving some of the key accounting issues but we need to be aware of the following also

1.  With this feature the COGS recognition now requires few extra concurrent requests to be submitted.
2. AR revenue need to be recognized to have COGS recognized
3. This functionality is not optional as it is mandatory to be used in R12
4. To make the complete set of transactions visible in the Material Transaction screen, ‘Include Logical Transaction’ checkbox need to be checked.