This function automatically calculates the amount of interunit (IU) profit/loss to be eliminated, which results from group-internal sales of goods and services between subsidiaries.

Interunit profit/loss has resulted from the sale of goods or services between individual units in the corporate group. From the point of view of the group as a single entity, no such profit/loss may occur. The amount of IU profit/loss calculated depends on the volume of inventory transferred and the profit percentages your group uses. Another factor influencing the profit/loss are the distribution costs and other incidental acquisition costs that arise at different stages in the supply chain. From the group’s point of view, these costs are considered part of the cost of goods manufactured as long as such goods are not sold externally.

The system calculates the IU profit/loss requiring elimination as follows:

System activities:

1. The sales revenue is determined.

All value adjustments made to the book value are reversed, giving the inventory value. The incidental acquisition costs (entered either as percentages or as monetary values) are deducted from the inventory value, giving the sales revenue.

2. The group cost of goods manufactured (COGM) is calculated from the sales revenue by multiplying the sales revenue amount by the COGM percentage rate and adding the incidental acquisition costs (or by multiplying sales revenue by the sum of the COGM percentage plus the incidental acquisition cost percentage).
3. The IU profit/loss requiring elimination is the difference between the book value and group COGM.

Keep in mind that the Consolidation system gives equal consideration to incidental costs as well as the additions or reductions to the cost of goods manufactured. This logic makes the assumption that both figures are similar in content.

You can choose one of two procedures for the automatic calculation of interunit profit/loss contained in the invoice amount:

This procedure calculates the interunit profit/loss using a profit percentage rate that is recorded in the supplier data. Two calculation variants are possible:

• The profit percentage is used as a markup. The interunit profit/loss is viewed as a percentage of the net invoice amount.
• The profit percentage is used as a gross margin of sales. The interunit profit/loss is viewed as a percentage of the gross invoice amount.

• When the profit percentage is used as a markup, the following IU profit is calculated:

• When the profit percentage is used as a gross margin, the following IU profit is calculated:

This procedure calculates the supplying unit’s cost of goods manufactured by multiplying the inventory quantity by the COGM that recorded per unit of measure. Hence, this procedure differs from variant J in the above schema. The following formula is used:

The following situations can occur during the calculation of IU profit/loss:

• Typically, IU profit/loss is calculated as follows:

• An exception exists if you:

• Perform valuation allowances disallowing loss, and...
• ... the interunit profit/loss to be eliminated is less than zero (meaning an IU loss situation in which the gross IU profit/loss is less than zero)

The system eliminates IU profit/loss for pairs of consolidation units, and lists the posted entries in the audit trail.

Deferred income taxes are normally posted during the elimination because the IU profit/loss calculated must be allocated to the period in question. The profit/loss that is eliminated is realized in a later period when the inventory item is sold to an external enterprise. Income taxes, therefore, are due at a later date (additional payments or refunds).

If you do not want to post deferred income taxes, you can declare this in the document type you use for the elimination.

Currency-related differences are recorded if the exchange rate indicator used for translating the balance sheet differs from the indicator used for the income statement and you specified a comparison exchange rate indicator in the elimination task.

Distribution costs are reclassified to COGM (if specified).

Balance Sheet (all values translated to AUS using the current exchange rate of 2.00 AUS per US $)

Income Statement (all values translated to AUS using the average exchange rate of 1.50 AUS per US $)

*) The currency translation difference was calculated using the comparison exchange rate indicator.