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Elimination of Interunit Profit/Loss in Inventory: New Function ( RELN45A_EC_CS_IPI )

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Elimination of Interunit Profit/Loss in Inventory: New Function

Description

Elimination of interunit profit/loss in inventory (IPI) uses data reported by an inventory managing unit and a supplying cons unit. Supply relationships can be shown using product groups. A product group is a user-definable object used only in the context of IPI.

The book value of inventory stock and group cost of goods manufactured (COGM) are calculated using standardized financial data. Incidental acquisition costs requiring capitalization that are reported by the inventory managing unit are also included in the calculation of group COGM.

Interunit (IU) profit/loss is calculated as the difference between the inventory book value and group COGM. Valuation allowance for inventory is also included in the calculation.

If IU profit is calculated (positive difference), the program posts an elimination entry to reduce the inventory value to the group value, and an offsetting entry in the income statement.

If IU loss is calculated (negative difference), the program posts an elimination entry to increase group COGM to the group value, and an offsetting entry in the income statement. You have the option of not posting interunit loss if the inventory concerned was sold at a market price lower than the group COGM.

The resulting values are correct from the point of view of the group. Retained earnings, annual net income, and deferred income taxes are automatically corrected after elimination entries have been posted.

The principles of caution and lowest values are adhered to during calculation. A distinction is therefore made between two types of valuation allowance: long-term valuation allowance that follows the principles of caution and lowest values (for example, unplanned depreciation) and valuation allowance that does not (for example, flat-rate valuation allowance).

Inventory items are typically translated using the current rate, revenue and expense items using the monthly rate. You therefore have the option of recording resulting translation differences separately.

If a distribution cost percentage is specified for the supplying cons unit, the distribution cost portion is automatically reclassified to a user-specified item, for example COGM.

During first consolidation, interunit profit/loss for the prior period can also be accounted for.

You need to create a special version for interunit profit/loss in inventory. This version is used in the inventory and supplier data, and in Customizing.

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