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BY Sudhanshu Tiwari Varun Thakral Umesh Singh Mba (B) Ii-Sem

This document summarizes transfer pricing, which refers to the prices at which different divisions within a company transact with each other. There are several goals of an effective transfer pricing system, including providing relevant information to each business unit, determining an optimal balance between costs and revenue, and helping to measure economic performance. Transfer pricing can impact performance measurement, accounting, customs duties, taxes, and the evaluation of each division's financial performance and contribution to overall profits. Market-based, cost-based, and negotiated transfer pricing methods are discussed. An example is provided of a transportation division purchasing crude oil and sending it to a refining division to be processed into gasoline.

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Mithlesh Singh
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63 views11 pages

BY Sudhanshu Tiwari Varun Thakral Umesh Singh Mba (B) Ii-Sem

This document summarizes transfer pricing, which refers to the prices at which different divisions within a company transact with each other. There are several goals of an effective transfer pricing system, including providing relevant information to each business unit, determining an optimal balance between costs and revenue, and helping to measure economic performance. Transfer pricing can impact performance measurement, accounting, customs duties, taxes, and the evaluation of each division's financial performance and contribution to overall profits. Market-based, cost-based, and negotiated transfer pricing methods are discussed. An example is provided of a transportation division purchasing crude oil and sending it to a refining division to be processed into gasoline.

Uploaded by

Mithlesh Singh
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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BY Sudhanshu Tiwari Varun Thakral Umesh Singh MBA (B) II-SEM

Value placed on transfers within an organization, used as mean of allocating costs of various profit centers is transfer pricing.

The price at which division of a company transact with each other. Transactions may include the trade Of supplies or labor between department.

1.It should provide each business unit with the relevant information. 2.It needs to determine optimum trade off between companies cost and revenue. 3.It should help to measure the economic performance of individual business unit. 4.The system should simple to understand and easy to administer.

1.Performance measurement. 2.Capability of accounting system. 3.Custum duties. 4.VAT 5.Taxes on profit.

1.Price setting for service perform by business unit. 2.A mean of evaluating financial performance of business unit. 3.Determining the contribution to net profit by profit centers in firm. 4.Reduce in corporate taxes paid. 5.Reduce in VAT,excise,tariffs.

The transfer price should be similar to the price that would be charged ifThe product should be sold outside to customers. OR Purchased from venders.

Market-based TP
Cost-based TP Negotiated TP

By using market-based transfer prices in a perfectly competitive market, a company can achieve the following: Goal congruence
Management effort

Subunit performance evaluation


Subunit autonomy

Lomas & Co. has two divisions: Transportation and Refining. Transportation purchases crude oil in Alaska and sends it to Seattle. Refining processes crude oil into gasoline.

ANY QUESTIONS ?

Thank You All the Best

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