[Zvika Rimalt]

Hi All,

Our users came up with the following business scenario:
We have several legal entities (companies)

Company A owns inventory
Company A sells some inventory to company B (inter-company sales order/purchase order), at cost, and applies a profit percentage of 5% – so making a profit of 5%
Company B receives and invoices the inter-company purchase order. inventory value reflects the purchase price + 5%, hence if company A sold inventory for $1000, company B now has inventory valued as $1050.

Now comes the complicated(?) part 
When the results of company A and company B are consolidated, we need to eliminate the extra $50 from the combined inventory value, and the “profit” company A made when selling to company B.
So company B needs to show inventory value of $1000, and company A should no longer show a profit of $50.

Have any of you seen a similar scenario? how did you handle it?

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Zvika Rimalt
Functional Solution Architect
Vancouver BC Canada
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[Steve Mortland]

I just did our first month end close in Dynamics 365 for Operations for a client with similar situation.  What I did was to  create an excel workbook with the Item #, Company A unit cost, columns for the quantity and value from Company B and columns for the Company B inventory at Company A costs and the difference.  

Then run the Inventory Valuation report for Company B and export to Excel.  You can then use a VLookup in your created excel workbook to look up the quantity on hand and financial value from the Valuation report.  The worksheet then calculates what you need for elimination entries.

Let me know if you need additional information.

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Steve Mortland
Principal Consultant
Stoneridge Software Inc.
Minneapolis, MN
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[Chad Back]

Another option I have seen successful.

The intercompany profit question can be solved through the use of auto-markup functionality specifically designed for intercompany eliminations.

1. You can set up these markup charges to be added to intercompany orders automatically. When a charge is added to an intercompany sales order, it is automatically synchronized to the intercompany purchase order and this works both ways (from the intercompany sales order to the purchase order).
2. You can also use markup charges to add a profit to an intercompany sales order by defining the markup charge as intercompany percentage of the sales price (there are other ways to calculate as well, configured by item, item group, or overall).
3. In setting up markup charges to be applied to your intercompany orders, you enable the calculation of internal profit for an intercompany sales order from the original sales order net amount. You might want to do this if your intercompany vendor sells to you at cost price.
4. The sales invoice will be for the gross charge including the markup.
5. The purchase order will have a gross purchase price, but will also have a markup charge which will accrue the offsetting value for intercompany profit on the buying company’s GL.
6. You have complete freedom in setting up the accounts that will be hit on these transactions. For example, the intercompany markup value can be booked to the same accounts on both companies or to different accounts of choice, which may then be set to automatically eliminate against each other in the elimination entry booked upon consolidation.  Similarly, the offsetting entry to the intercompany profit (revenue) account may be booked against the inventory asset account or directly to COGS, if deemed appropriate.  This is all possible through the setup of the miscellaneous charges.

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Chad Back
Director, BKD Technologies
317-748-0728
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[Ryan Sorenson]

I did something similar to this once.  We used a financial dimension for inter company transactions, and identified them in Management Reporter using the financial dimension.  In your case where the markup is 5% it would be simple to calculate that in MR based on inter company revenue, the elimination amount would be 5% of revenue.  

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Ryan Sorenson
Sunrise Technologies, Inc.
Salt Lake City, UT
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