Environment

• Product: Dynamics 365 Business Central (online)
• Version: 27.0 
• Country/Localization: W1
• Scenario: Sales and Service Credit Memos with Non-deductible VAT and “Use for Item Cost” enabled

Summary of the issue

When using Non-deductible VAT and activating “Use for Item Cost”, posting a Sales Credit Memo / Service Credit Memo calculates and posts the inventory value incorrectly.

Instead of using Unit Cost, the system uses Unit Price for the value that is capitalized into inventory. This causes the item ledger entries and inventory value to be overstated/incorrect.

Steps to reproduce

1. Configure a VAT setup with Non-deductible VAT and enable “Use for Item Cost”.
2. Create an Item and make sure it has a valid Unit Cost and Unit Price (so that they are different and the behavior is visible).
3. Then create, insert the item to the credit memo and post a Sales Credit Memo / Service Credit Memo
4. Review the resulting Item Ledger Entries and Value Entries for the credit memo.

Expected result

• Non-deductible VAT is not related to Receivables, so any posting in Sales/Service should not be affected by Non-Deductibe VAT
• Inventory value and related postings should align with Unit Cost on Sales/Service Line, not sales/unit price.

Actual result (bug)

• For Sales/Service Credit Memos, the system uses Unit Price instead of Unit Cost when calculating the value related to Non-deductible VAT with “Use for Item Cost”.
• This causes the inventory value, item ledger entries and value entries to be wrong.
• As a result, inventory and COGS become inconsistent with the underlying cost flow and with the original transaction.

Impact and why this is important

• This is not just a cosmetic or reporting issue – it affects core financial correctness:
• Inventory valuation is incorrect.
• COGS and margin analysis become misstated.
• It can impact financial statements and audit compliance.
• For customers using Non-deductible VAT (common in several localizations), this creates ongoing data quality and accounting problems every time service/sales credit memos with item are posted.

Please treat this as a high-priority defect and consider including a fix in an upcoming cumulative update / minor release. If needed, I can provide anonymized screenshots or additional test data to help reproduce the issue.