January Close at a Subscription Business
Northwind Subscriptions bills annual software subscriptions. In January it invoiced three customers: a $120,000 bundle of a 12-month license and support; a EUR 90,000 invoice to a German customer on 60-day terms; and a $45,000 invoice dated 28 January for a subscription that starts 1 April. The company runs NetSuite Advanced Revenue Management, and the license and support items carry fair value prices of $96,000 and $24,000, although the bundle sold for $108,000. At the January close the controller wants three things resolved: January revenue reported correctly on the bundle, the open EUR receivable revalued at the 31 January rate, and an $18,000 invoice discovered on 4 February that had been posted with a 22 January date into a period that is already closed. The controller also wants to know where the April subscription sits on the balance sheet at 31 January.
1. How should the $108,000 bundle be allocated between license and support, and what would you verify before posting?
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The bundle sold for $108,000 against total fair value of $120,000, so the $12,000 discount is allocated proportionally unless an explicit allocation rule says otherwise. License: 96,000/120,000 x 108,000 = $86,400. Support: 24,000/120,000 x 108,000 = $21,600. In Advanced Revenue Management the invoice creates a revenue arrangement; the arrangement lines carry the fair value price from the item record and the allocation is calculated on the arrangement, not typed on the invoice line. The license element is recognised when its performance obligation is satisfied (point in time, or over the term if it is a right-to-access licence), and support is recognised ratably over 12 months at $1,800 per month. Before posting, confirm both fair value prices are current and approved as standalone selling prices, and confirm the arrangement is not on hold - a hold freezes the plan and January revenue will not post. Document the allocation basis; auditors will ask why $86,400 rather than $96,000 hit licence revenue.
2. What is the difference between revaluing the EUR receivable and translating the subsidiary, and what could go wrong with the revaluation run?
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Revaluation looks at open foreign-currency balances in a subsidiary's own books - here the EUR 90,000 receivable - restates them at the period-end rate, and posts the difference to an unrealised gain/loss account. The invoice itself is not changed; NetSuite generates revaluation transactions, and the usual practice is to reverse them at the start of the next period so the realised gain or loss is captured when the customer actually pays at the payment-date rate. Translation is what consolidation does to the subsidiary's whole trial balance. Before running revaluation, verify which unrealised gain/loss account is mapped, because a mis-mapped account pushes the swing into operating expense and distorts gross margin. Confirm the receivable is still open - a payment applied on 30 January needs no revaluation - and that the period is open, since a revaluation run against a locked period either fails or lands somewhere you did not intend.
3. How would you handle the backdated invoice and the subscription that starts in April?
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Treat them as two separate issues. The $18,000 invoice dated 22 January sits in a closed period: do not reopen the period casually, because it invalidates the close and every downstream report. Establish whether the period is Closed or merely Locked, since the two behave differently for adjustments, and if it is closed, post the correcting entry in February with a clear memo and a reference to the original transaction; let the controller decide whether January financials need reissuing. Second, the $45,000 invoice billed in January but starting 1 April is deferred revenue at 31 January. The revenue plan start date must be 1 April, not the invoice date, or the schedule will recognise revenue before the service is delivered. Check that the invoice line created a plan at all: an item with no revenue recognition template or fair value price can post straight to revenue, and that omission is usually what hides behind a 'missing deferred revenue' question.