MEA allocation calculation examples—Contracts

There are numerous scenarios for when you might want to reallocate revenue across a multiple-element arrangement (MEA). This topic contains examples of how Intacct calculates MEA allocations in a few of these scenarios. For information on how to create an MEA allocation, see MEA allocations.

How MEA is allocated

The following is the basic calculation for allocating revenue in an MEA in a contract:

The calculation is different if the MEA contains items priced as No Fair Value, as then the MEA is allocated using the Residual method. See Example 4.

Example 1 — MEA allocations during a contract's life cycle

This example shows how revenue is allocated in the following scenarios during a contract's term:

• MEA allocation at the start of a contract
• MEA allocation after an add-on
• MEA allocation after a fair value price change

MEA allocation at the start of a contract

Let's say you start a 12-month contract for a customer on January 1 for two line items: a Web server and Gold level service. The following data is the same for both contract lines:

• Contract line term: January 1 - December 31
• Journal 1 revenue term: January 1 - December 31
• Journal 1 revenue method: Straight line

You create the first MEA allocation record with an Effective date of January 1. Intacct allocates the revenue as follows:

Item	Extended contract price	Extended fair value	MEA allocation %	MEA allocation
Web server	2,400.00	2,000.00	68.97 (2,000.00 / 2,900.00)	2,344.83 (3,400.00 x 0.6897)
Gold level service	1,000.00	900.00	31.03 (900.00 / 2,900.00)	1,055.17 (3,400.00 x 0.3103)
Total	3,400.00	2,900.00	100	3,400.00

MEA allocation after add on to contract

On April 1, the customer calls and orders Maintenance. The following is the data for the add on Maintenance contract line:

• Contract line term: April 1 - December 31
• Journal 1 revenue term: April 1 - December 31
• Journal 1 revenue method: Straight line

You create the second MEA allocation record with an Effective date of April 1. Intacct allocates the revenue as follows:

Item	Extended contract price	Extended fair value	MEA allocation %	MEA allocation
Web server	2,400.00	2,000.00	48.78 (2,000.00 / 4,100.00)	2,390.24 (4,900.00 x 0.4878)
Gold level service	1,000.00	900.00	21.95 (900.00 / 4,100.00)	1,075.61 (4,900.00 x 0.2195)
Maintenance	1,500.00	1,200.00	29.27 (1,200.00 / 4,100.00)	1,434.15 (4,900.00 x 0.2927)
Total	4,900.00	4,100.00	100	4,900.00

Example 2 — MEA with a 0.00 line item

Let's say you have a contract for three line items: Web server, Platinum level service, and Maintenance. As the customer purchased the Platinum level service, you are giving them the Maintenance item for 0.00. The Maintenance item does have a value greater than 0.00 in the MEA price list, so Intacct will allocate revenue to it and it will have its own revenue schedule.

The following data is the same for all three line items:

• Contract line term: January 1 - December 31
• Journal 1 revenue term: January 1 - December 31
• Journal 1 revenue method: Straight line

You create the first MEA allocation record with an Effective date of January 1. Intacct allocates the revenue as follows:

Item	Extended contract price	Extended fair value	MEA allocation %	MEA allocation
Web server	2,400.00	1,800.00	41.666667 (1,800.00 / 4,600.00)	1,750.00 (4,200.00 x 0.41666667)
Platinum level service	1,800.00	1,600.00	33.333333 (1,600.00 / 4,600.00)	1,400.00 (4,200.00 x 0.33333333)
Maintenance	0.00	1,200.00	25 (1,200.00 / 4,600.00)	1,050.00 (4,200.00 x 0.25)
Total	4,200.00	4,600.00	100	4,200.00

Example 3 — MEA with a Discount/Credit contract line

A Discount contract line has a positive quantity and negative rate. It will be allocated to 0.00.

Let's say you are running a promotion where the customer receives a 15% discount if they order three line items. A customer orders the following: Web server, Platinum level service, and Maintenance. You add a Discount/Credit contract line with a positive quantity and negative rate and distribute the discount across the three line items prior to creating the MEA. The discount line will have a billing schedule, but it will not have a revenue schedule. Learn more about entering discounts on contracts.

The following data is the same for all four line items:

• Contract line term: January 1 - December 31
• Journal 1 revenue term: January 1 - December 31
• Journal 1 revenue method: Straight line

You create the first MEA allocation record with an Effective date of January 1. Intacct allocates the revenue as follows:

Item	Rate	Qty	Extended contract price	Extended fair value	MEA allocation %	MEA allocation
Web server	2,400.00	1	2,400.00	1,800.00	41.666667 (1,800.00 / 4,600.00)	2,018.75 (4,845.00 x 0.41666667)
Platinum level service	1,800.00	1	1,800.00	1,600.00	33.333333 (1,600.00 / 4,600.00)	1,615.00 (4,845.00 x 0.33333333)
Maintenance	1,500.00	1	1,500.00	1,200.00	25 (1,500.00 / 4,600.00)	1,211.25 (4,845.00 x 0.25)
Discount	-855.00	1	-855.00	0.00	0.00000	0.00
Total			4,845.00	4,600.00	100	4,845.00

Learn more about negative contract lines in MEAs.

Example 4 — MEA allocation when one or more items have no fair value

The MEA allocation process will automatically use the Residual method when an item priced as "No Fair Value" is included in the MEA allocation. In this scenario, the allocation amount for the items that do have fair value prices is equal to each item's fair value price. The residual calculation determines the allocation amount for the items with no fair value.

This example shows how revenue is allocated in the following scenarios:

• When there's only one item in the MEA with no fair value
• When there's more than one item in the MEA with no fair value

When there is only one item in the MEA with no fair value

In this scenario, the MEA allocation process uses the following calculation to determine the MEA amount for an item with no fair value:

Let's say you have a contract that includes the following contract lines: Basic training, Intermediate training module, and On demand training. Your company sells the Intermediate training module at many different prices to different customers, so there's no observable fair value for it. You create an MEA price list entry for the Intermediate training module and price it as "No Fair Value."

When you create the MEA allocation, Intacct allocates the revenue as follows:

Item	Extended contract price	Extended fair value	MEA allocation %	MEA allocation
Basic training	975.00	925.00	---	925.00
Intermediate training module	650.00	0.00	---	950.00 (4,875.00 - 3,925.00)
On demand training	3,250.00	3,000.00	---	3,000.00
Total	4,875.00	3,925.00		4,875.00

When there is more than one item in the MEA with no fair value

In this scenario, the MEA allocation process uses the following calculation to determine the MEA amount for the items with no fair value:

Let's say you have a contract that includes the Basic training, Intermediate training module, and On demand training items, but you are also including an additional Intermediate training module with a different contract price.

When you create the MEA allocation, Intacct allocates the revenue as follows:

Item	Extended contract price	Extended fair value	MEA allocation %	MEA allocation
Basic training	975.00	925.00	---	925.00
Intermediate training module	650.00	0.00	---	850.00 ( 650.00 / (650.00 + 325.00) x (5,200.00 - 3,925.00) )
Intermediate training module	325.00	0.00	---	425.00 ( 325.00 / (650.00 + 325.00) x (5,200.00 - 3,925.00) )
On demand training	3,250.00	3,000.00	---	3,000.00
Total	5,200.00	3,925.00		5,200.00

Example 5 — MEA allocation with a completed contract line (retrospective)

Say you have an MEA allocation with two contract lines that have the same revenue start date but have different revenue end dates. The revenue term for the Software line is 01/01/2023 through 12/31/2023, while the revenue term for the Services line is 01/01/2023 through 04/30/2023. You execute the first MEA allocation effective 01/01/2023. The system allocates the revenue as follows:

Item	Start date	End date	Extended contract price	Extended fair value	MEA allocation %	MEA allocation
Software	01/01/2023	12/31/2023	40,000.00	31,500.00	71.590909 (31,500.00 / 44,000.00)	37,585.23 (52,500.00 x 0.71590909)
Services	01/01/2023	04/30/2023	12,500.00	12,500.00	28.409091 (12,500.00 / 44,000.00)	14,914.77 (52,500.00 x 0.28409091)
Total			52,500.00	44,000.00		52,500.00

You recognize revenue for both contract lines as scheduled, and the Services revenue schedule is completed.

Now on 05/01/2023, you add a new Maintenance contract line to the contract. Even though the revenue schedule for the Services line is completed, you want to include that contract line in the new allocation with an Effective date of 05/01/2023. Intacct allocates the revenue as follows:

Item	Start date	End date	Extended contract price	Extended fair value	MEA allocation %	MEA allocation
Software	01/01/2023	12/31/2023	40,000.00	31,500.00	42.567568 (31,500.00 / 74,000.00)	30,861.49 (72,500.00 x 0.42567568)
Services	01/01/2023	04/30/2023	12,500.00	12,500.00	16.891892 (12,500.00 / 74,000.00)	12,246.62 (72,500.00 x 0.16891892)
Maintenance	05/01/2023	12/31/2023	20,000.00	30,000.00	40.540541 (30,000.00 / 74,000.00)	29,391.89 (72,500.00 x 0.40540541)
Total			72,500.00	74,000.00		72,500.00

You've already recognized 14,914.77 for the Services contract line, but now its allocation is changed to only 12,246.62. Here's how the revenue schedule for the Services contract line appears after the reallocation:

Intacct leaves the revenue that was already posted as is. It automatically posts an adjustment that reverses the total amount previously recognized, (14,914.77), and uses the new MEA allocation's Effective date 05/01/2023 as the posting date. It then schedules the entire newly allocated amount, 12,246.62, to be posted on 05/01/2023. Depending on the associated revenue template's posting type, you can either post the open revenue manually or wait for Intacct to post it automatically on 05/01/2023.

Example 6 — MEA allocation with a completed contract line (prospective)

Say you have an MEA allocation with two contract lines that have the same revenue start date but have different revenue end dates. The revenue term for the Software line is 01/01/2023 through 12/31/2023, while the revenue term for the Services line is 01/01/2023 through 04/30/2023. You execute the first MEA allocation effective 01/01/2023. The system allocates the revenue as follows:

Item	Start date	End date	Extended contract price	Extended fair value	MEA allocation %	MEA allocation
Software	01/01/2023	12/31/2023	20,000.00	18,000.00	75.00 (18,000.00/ 24,000.00)	25,800.00 (34,400.00 x .7500)
Services	01/01/2023	04/30/2023	14,400.00	6,000.00	25.00 (6,000.00/ 24,000.00)	8,600.00 (34,400.00 x .2500)
Total			34,400.00	24,000.00		34,400.00

You recognize revenue for both contract lines as scheduled for January through June, so the Services revenue schedule is completed.

Now on 07/01/2023, you want to add a new Maintenance contract line, but preserve the allocation for the completed Services line. To accomplish this, first create a debook contract line for the in-progress Software item. The amount for the debook line will be the negative value of the remaining revenue to be recognized. In this example, half of the $20,000 has already been recognized for January through June, so the debook line amount is -$10,000.

Next, renew the contract with the Software contract line for the remaining $10,000 to be recognized. Then, you can add the new Maintenance contract line and create the MEA allocation for the renewed contract:

Item	Start date	End date	Extended contract price	Extended fair value	MEA allocation %	MEA allocation
Software	07/01/2023	12/31/2023	10,000.00	9,000.00	31.034483 (9,000.00/ 29,000.00)	7,758.62 (25,000.00 x .31034483)
Maintenance	07/01/2023	12/31/2023	15,000.00	20,000.00	68.965517 (20,000.00/ 29,000.00)	17,241.38 (25,000.00 x .68965517)
Total			25,000.00	29,000.00		25,000.00

Example 7 - MEA allocation with a Debook contract line

A Debook contract line has a negative quantity and positive rate. It has a negative extended fair value.

Let's say you have a contract with a term of 01/01/2023 through 12/31/2023. There are two contract lines: Line 1 for a quantity of five training classes and Line 2 for supporting services. You create an MEA allocation scheme for the two lines that's effective as of 01/01/2023.

After you deliver one training class in February, the customer calls on 02/28/2023 and wants to cancel two of the classes. According to your business process, you will use a negative contract line to adjust the quantity, you want the negative contract line to participate in the MEA, and you want it to have its own revenue schedule.

You create a Debook line for the Basic training item with a Qty of -2 and a rate of 975.00. In this example, you set the contract line start date to 03/01/2023 and end date to 12/31/2023. You create a new MEA allocation effective 03/01/2023 as follows: