IU profit/loss has resulted from the sale of inventory between individual enterprises 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 fixed within your group. 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 the goods for which they are incurred are not sold externally.

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

• First, the sales revenue is determined. All value adjustments included in the balance sheet value / book value are reversed, giving the inventory value. The incidental acquisition costs entered as a percentage or as an absolute value are deducted from the inventory value, giving the sales revenue.
• The group cost of goods manufactured (COGM) is calculated from the sales revenue, by multiplying this amount by the percentage COGM and adding the incidental acquisition costs (or by multiplying sales revenue by the sum of the COGM and incidental acquisition cost percentages).
• The IU profit/loss requiring elimination is the difference between the balance sheet value and group COGM.

Note that incidental acquisition costs are considered to be part of the COGM for the purposes of calculation. This is because, from the group’s point of view, no incidental acquisition costs can be incurred for a good that was manufactured within the group and sold to a group subsidiary.

You have two options for calculating IU profit/loss:

IU profit/loss is calculated using a profit percentage that you enter as part of the supplier data. The profit percentage can be interpreted in the following different ways:

• As a markup on COGM
• As a gross margin (a percentage of sales)

Profit percentage: 20 %

Invoiced amount: 2500

If the profit percentage is a markup, the following IU profit is calculated:

2500 * 20 / 120 = 417

If the profit percentage is a gross margin, the following IU profit is calculated:

2500 * 20 / 100 = 500

The COGM for the supplier is calculated by multiplying the inventory quantity by the COGM that you enter per unit. With this procedure, variant J in the above schema is calculated differently, a follows:

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

1. Typically, IU profit/loss is calculated as follows:

inventory book value - group COGM

2. In exceptional cases:

The system eliminates IU profit/loss for pairs of consolidation units, and lists the postings made in an audit trail. The sum of the group COGM and the IU profit/loss is the inventory book value.

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 on sale of the inventory to an external enterprise. Income taxes therefore become due at a later date (additional payments or refunds). Distribution costs are reclassified to COGM (if specified). Translation differences are posted separately if the exchange rate indicator used for translating the balance sheet differs from that used for the income statement and you specified a comparative exchange rate indicator in the elimination task.

If you do not want deferred income taxes to be posted, you need to specify this in the document type that you use for the elimination.