Inter-Division Sales & Journal Entries

Dear Gurus,

I'm currently working on providing a solution for Internal Sales between divisions operating under the same company code. These divisions are profit centers and they are actually selling products, services and projects to each other. Now, we have created a Customer Account Group and Vendor Account Group for these divisions and I have strong doubts on the solution design, so I will propose the solution and I hope from the experts on the subject to have a look and give his/her feedback especially when it comes to the Reconciliation Account, handling of Inventory and the GL Entries created:

Prelims/Assumptions:

1. The Selling Division (with profit center: AA) purchased Trading Materials earlier from the market for Trading Purposes.
2. Upon completion of Purchase cycle for any given material, the below GL Entries has been created assuming the price of 100 for 1 unit:
   • Dr. Inventory (BS Account)                  100          PC: AA
     • Cr. GR/IR (Control Acct. BS Account)    100            PC: AA
   • Dr. GR/IR (Control Acct. BS Account)  100          PC: AA
     • Cr. A/P-Vendors (Balance Sheet)            100            PC: AA
3. So, the Moving Average of the Material is now: 100 assuming a quantity of 1 Units at 100 USD/unit.
4. Valuation is at the Plant Level and we have 1 Plant for 1 Company Code.
5. Profit Centers are assigned to Materials Master with relevance to the division and storage location
6. New GL with New Profit Center Document Splitting is Active. This means that any Profit Centers are balanced for any given transaction on the system (on any GL Entry)

Sales Process:

1. Sales Quotation: A Sales Division represented by a Sales Area quotes another division represented as a Customer. What would be the Reconciliation Account for such a Customer? We are proposing a Customer Recon Account called: Inter-Division Customer. While creating the Customer Account we are also giving it a Vendor Account so that Netting is possible
2. Then, we perform Cost Planning and Pricing on the Quotation and accordingly, it's being sent to the Internal Division (Customer) similar to external customers.
3. Sales Order: Upon Awarding, the Sales Order is created as a Subsequent Order from the Quotation, copied in full with reference.
4. Now we have several scenarios:
   • Sales Order selling Products (Trading Goods)
   • Sales Order Costing for Project (Unit Cost Estimate) - Assigned to Internal Order or WBS Element
   • Sales Order for Services (Bill of Services) - Assigned to Internal Order or WBS Element
   • Sales Order selling Assembled Finished Goods
5. Delivery & Billing: Assuming the Classical Sales Order of selling Trading Goods, we now perform Sales Delivery and Billing for the Product being sold to division BB. For example, Division AA decides to sell the product to Division BB at the price of 120. Division BB is buying from Division AA:      

Delivery: GL Entry @ Division AA: Dr. Cost of Goods Sold (P&L)          100          PC: AA                                                            

                                                                           Cr. Inventory (Balance Sheet)            100               PC:AA        

Billing:    GL Entry @ Division AA: Dr. Inter Division Customer (BS)     120           PC: AA                                                                

                                                        Cr. Sales Revenue (P&L Account) 120               PC: AA    

Goods Receipt: GL Entry @ Division BB: Dr. Inventory (BS)                          120          PC: BB                                                                          

                                                                           Cr. Inter Division Vendor (BS)          120            PC: AA

(Ignore the standard Goods Receipt and Invoice Verification process done by Division BB involving the GR/IR Account which will be closed eventually. The impact eventually will be the same as above)

Note: Once this is happening the Inventory BS Account balance is now 120. And accordingly, the moving average for the Material is 120 for the 1 unit. Is this right from an Accounting perspective? Material Valuation has increased by 20 for the material due to Internal Purchase. PC AA has incurred a Profit of 20 USD.

At this stage: GL Entry @ Division BB: No Entry created except when selling to an external customer. Assuming Division BB sold the material to an external customer for this unit at 150 USD, the following will be GL Entries:                                                      

Delivery: Dr. COGS (P&L) 120     PC: BB                                                 

                         Cr. Inventory (BS)    120          PC: BB                            

Billing:    Dr. Customer (BS) 150                  PC: BB                                                 

                         Cr. Sales Revenue (P&L) 150               PC: BB

Now, here's my real inquiries:

1. The first division: AA incurred a 20 USD net profit in its profit center. Is this right?
2. The second division: BB incurred a 30 USD net profit in its profit center. Is this right?
3. The Inter-Division Customer and Vendor Accounts are to be cleared with each other similar to the elimination process for Inter company purchases and sales. Right? Can this be done automatically.
4. The Inventory Valuation has been revaluated with an uplift to 20 USD from 100 to 120. Is this right? No revaluation has taken place. The material received a new price. I assumed that the material has been sold in full before purchasing it by the other division. What if we sold partial quantities and we bought other quantities at different price? This will yield a different Material Moving Average based on the valuation of the Quantity at Hand.
5. Has anyone of you encountered such a business process before and you have a better solution? Standard?
6. I know that it's improper to buy and sell between divisions running under the same Company Code, but this is a valid and logical business case and divisions are being evaluated on their Profits and their performance. A division needs to be encouraged to sell internally as if it's selling externally as part of the Overall Synergy of the Company and its divisions. A profit center needs to capture its revenues not only its costs.

Let me know your thoughts and please give me your inputs. I will also share this solution with other experts and I know that it might be Accounting relevant inquiry but I brought to you an Integration Scenario and we should be tackling integrated scenarios rather than isolated processes.

Thanks. I'm looking forward for an expert feedback.

Reda