Example of Accounting of Lot Merge Transactions

This example illustrates the accounting entries for a lot merge transaction.

Scenario

Let's consider two lots, Lot11 and Lot12, of Item-A with 4 and 6 units each. The items are costed using the actual cost method. Lot12 of 6 units has two receipts of 2 and 4 units with a unit cost of $15 and $7.50 respectively. These two lots are merged into a lot in another subinventory as listed in this table.

Item	Subinventory	Lot Number	Depletion Receipt Number	Transaction Type	Quantity	Unit Cost	Amount
Item-A	Subinventory1	Lot11	1	Inventory Lot Merge	- 4	$10	($40)
Item-A	Subinventory1	Lot12	2	Inventory Lot Merge	- 2	$15	($60)
Item-A	Subinventory1	Lot12	3	Inventory Lot Merge	- 4	$7.50	($60)
Item-A	Subinventory2	Lot13		Inventory Lot Merge	10	$10	$100

Note: The unit cost of the quantity received in Lot13 as part of the merge transaction is equal to the weighted average cost of the lots being merged, Lot11 and Lot12. For the actual cost method, this weighted average cost is derived based on the cost of each of the individual receipts which are depleted to cost the lot merge issue transaction.

Analysis

Cost accounting creates these distributions for the transactions corresponding to the source lots, Lot11 and Lot12.

Accounting Event	Valuation Unit	Accounting Line Type	Cost Element	Amount in USD (+Dr/-Cr)
Lot Merge	Subinventory1-Lot11	Offset	Material	+ 40.00
Lot Merge	Subinventory1-Lot11	Inventory Valuation	Material	- 40.00
Lot Merge	Subinventory1-Lot12	Offset	Material	+ 60.00
Lot Merge	Subinventory1-Lot12	Inventory Valuation	Material	- 60.00

For the resultant transaction of the lot merge, these distributions are created.

Accounting Event	Valuation Unit	Accounting Line Type	Cost Element	Amount in USD (+Dr/-Cr)
Lot Merge	Subinventory2-Lot13	Inventory Valuation	Material	+ 100.00
Lot Merge	Subinventory2-Lot13	Offset	Material	- 100.00