Entity 1 Site A to Entity 3 Site D:Profit and Freight Cost Markup (Different Currency)

In this example, Entity 1, Site A transfers product to Entity 3, Site D, with both a profit and freight cost markup. The two entities are in different countries (in this example, the United States and Japan), and thus there is a need to employ a currency conversion rate. Here the conversion rate is assumed to be 190 Yen to the Dollar, and the actual cost of the product for Site A is $1.00, or 190 Yen.

The company has defined the seller as the Free On Board (FOB) owner, and has established a profit markup of cost plus 10%. This is established in a global pricing table.

Freight, duty, and brokerage are established as indicated below for Site A:

Note: The entries shown below must be made to both sites at time of shipment.

Site A Journal Entries:
	Credit	Debit
InterEntity A/R		$1.10
	(Cost + 10% = Transfer Price)
InterEntity C of S Matl		$0.50
InterEntity C of S Labor		$0.15
InterEntity C of S Fixed Ovhd		$0.20
InterEntity C of S Var. Ovhd		$0.15
InterEntity C of S Outside Serv		$0.00
InterEntity Sales	$1.00
InterEntity Profit	$0.10 (Cost + 10% - Cost)
Inv Matl	$0.50
Inv Labor	$0.15
Inv Fixed Ovhd	$0.20
Variable Ovhd	$0.15
Outside Serv	$0.00

This table shows the entries for Site D:

Site D Journal Entries:
	Credit	Debit
InterEntity Intransit Inv		Y205
	(Site D Actual Inventory Cost + Cost Markup of Freight, Duty, etc.)
InterEntity Cost		Y19
	(Site A Cost + 10% - Site A Cost)
InterEntity Val. Var.		$0.20
InterEntity C of S Var. Ovhd	Y 0 (Site D Cost - Site A Cost - Cost Markup)
InterEntity A/P	Y 209 (Transfer Price)
Freight Expense	Y10
Duty Expense	Y3
Brokerage Expense	Y2

When inventory is received by Site D:

Site A Journal Entries -- None

Site D Journal Entries
	Credit	Debit
Inv Matl		Y205
	(Site D Inventory Cost)
InterEntity Intransity Inventory	Y 205 (Site D Inventory Cost)