Module 13 Transfer Pricing

Question 1

Transfer pricing

Answer 1

• Business which has different divisions or segments which can buy or sell supplies or services to each other

Question 2

Transfer pricing must have several characteristics

Answer 2

• Divisional Autonomy
• Allow Profits
• Group-focussed
• Clear, Understandable & Transparent
• Arm’s Length

Question 3

The transfer price may be based on

Answer 3

• Market price
• Marginal cost
• Full cost
• Cost plus margin
• Negotiated price

Question 4

When sould transfers take place?

Answer 4

• Should take place if they increase profits of the organisation as a whole.

Question 5

Minimum Acceptable Transfer Price

Answer 5

• Ensures that the supplying division’s contribution remains the same, whether internal transfers are taking place or not

Question 6

International transfer pricing objectives

Answer 6

• Tax planning
• Fewer foreign exchange risks
• Better competitive position
• Better government relations

Question 7

Transfer pricing covers what else?

Answer 7

• Charges made to other organisation departments by IT
• Head office management charges to subsidiaries
• Interest rate of borrowings between group companies