To eliminate intercompany profit on inventory, there are three rules (sequences):
- Sequence 010 posts to the buyer:
- The buyer's inventory is reduced by the amount of the profit.
- There is an offset to the buyer's income statement (ultimately, this will be posted in the seller, not the buyer).
- Sequence 020 posts to the buyer:
- The income statement entry from sequence 010 is reversed.
- Two clearing items are created (one for the balance sheet and one for the income statement).
- Sequence 030 posts to the seller:
- The profit for the seller is eliminated.
- There is an offsetting entry to the balance sheet.

Sequence 010 - Settings
Sequence 010 posts to the triggering consolidation unit. Percent from Partner is selected in order to look up the percent markup from the seller and calculate the amount of profit in inventory.

Sequence 010 - Trigger
- The Z-IPI-GV (Internal Inventory Gross Value) selection object selects FS items with the S-IPI-GV elimination selection attribute and partner units 000 to ZZZ.
- The S-IPI-GV elimination selection attribute is used in FS item IPI_GV_M (Intercompany Profit on Inventory Gross Value for Merchandise).
- IPI-GV-M is a statistical item.

Sequence 010 - Source and Destination
- Source Account Assignment:
- Target Attr. for Src: S-ELIMINATION-TARGET: Because 131200 Merchandise is the Elimination Target for the IPI-GV-M FS item, it is credited.
- Subitem (transaction type) 915 is included in the credit posting.
- Target Account Assignment:
- Target Attr. for Src: S-ELIMINATION-TARGET and
Target Attrib. Inherited from Src Item: Because 412100 Changes in Inventory is the Elimination Target for the 131200 FS item, it is debited.
- Subitem (functional area) YB99 is included in the debit posting.
- Target Attr. for Src: S-ELIMINATION-TARGET and
- Since these postings affect both the balance sheet and income statement, automatic postings will be generated based on selected items.

Sequence 010 - Percentage
- The Z-IPI-RATE selection object selects FS Item IPI-RATE via its role.
- The FS Item IPI-RATE contains the profit percentage from the seller.
- By including Material, the system searches for the profit percentage for seller, buyer, and material combinations.
- The system first searches for the percentage with the same additional characteristic value as the trigger data. If this percentage cannot be found, the system searches without this additional characteristic value.

Note
To use material in the method, it must be flagged under Enable Master Data in configuration object Define Consolidation Master Data Fields.
Note
In the reclassification method, characteristics in addition to material can be selected to search for percentages.Sequence 020
- Settings: sequence 020 posts to the triggering consolidation unit. Percent from Partner is selected in order to look up the percent markup from the seller and calculate the amount of profit in inventory.
- Trigger: the Z-IPI-GV (Internal Inventory Gross Value) selection object selects FS Items with the S-IPI-GV elimination selection attribute and partner units.
- Source and destination account assignment:
- The Source Item Role (S-CLR-GM-PL) books a credit to the 41200D (Clearing-Gross Margin) FS Item and the YB99 functional area.
- The Destination Item Role (S-CLR-GM-BS) books a debit to the 13100D (Clearing-Gross Margin B/S) FS Item and the 915 transaction type.
- Since these postings affect both the balance sheet and income statement, automatic postings will be generated based on selected items.
- Percentage: The Z-IPI-RATE selection object selects FS Item IPI-RATE via its role.
Sequence 030
- Settings: sequence 030 posts completely to the partner consolidation unit. Percent from Partner is selected in order to look up the percent markup from the seller and calculate the amount of profit in inventory.
- Trigger: the Z-IPI-GV (Internal Inventory Gross Value) selection object selects FS Items with the S-IPI-GV elimination selection attribute and partner units.
- Source and destination account assignment:
- The Source Item Role (S-CLR-GM-BS) books a credit to the 13100D (Clearing-Gross Margin B/S) FS Item and the 915 transaction type.
- The Destination Item Role (S-CLR-GM-PL) books a credit to the 41200D (Clearing-Gross Margin) FS Item and the YB99 functional area.
- Since these postings affect both the balance sheet and income statement, automatic postings will be generated based on selected items.
- Profit for the seller is eliminated.
- Percentage: The Z-IPI-RATE selection object selects FS Item IPI-RATE via its role.
Elimination of internal profit in inventory affects the net income. Therefore, those elimination entries must be included in the calculation base for consolidation of investments. If you use the activity based method, the following actions are needed:
- If using 2108 and later content, no action is needed.
- If using content before 2108, open an incident with component FIN-CS-COR-COI to adjust the calculation base to include posting level 20.
The How-To Start Up Interunit Elimination of Profit in Inventory (IPI) can be found in the attachments for the following note: FAQ About SAP S/4HANA Cloud for Group Reporting