Answered: Why is transfer pricing such a…

Business

Accounting

Why is transfer pricing such a contentious issue?

Business/Professional Ethics Directors/Executives/Acct

8th Edition

ISBN:9781337485913

Author:BROOKS

Publisher:BROOKS

Chapter6: Professional Accounting In The Public Interest

Section: Chapter Questions

Problem 29.3EC

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Question

Why is transfer pricing such a contentious issue?
2. Why do you think the judge favoured the “CUP” method?
3 What other method would have been appropriate

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Explain and critically assess the general idea behind transfer pricing. Would it be beneficial for allcompanies? Why?
In a transfer pricing decision, which of the following factors should be considered? Both A and B None of the above Market price and cost Negotiation and target profit
1. “Transfer pricing is confined to profit centres”. Do you agree? Why? 2. Give three general methods for determining transfer prices. 3. What properties should transfer-pricing systems have? 4. “All transfer-pricing methods give the same division operating income.” Do you agree? Explain. 5. Under what conditions is a market-based transfer price optimal? 6. What is one potential limitation of full cost-based transfer pricing?
What is Transfer Pricing? What are the approaches in determining transfer prices? In your own idea, identify some best practices in transfer pricing.
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Should transfers be made to division B if there is no unused capacity in division A? Is the market price the correct transfer price? Show your computations.
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“Transfer pricing is confined to profit centers.” Do you agree? Explain.
Calculate the lowest acceptable transfer price for the seller (Division A) ?
Which of the following statements is true about agency efficiency? a. The costs from vertical integration exceed the costs from market exchange at low levels of asset specificity. b. The costs from vertical integration always exceed the costs from market exchange. c. The costs from vertical integration exceed the costs from market exchange at high levels of asset specificity. d. The costs from vertical integration are always less than the costs from market exchange.
“Cost and price information play no role in negotiated transfer prices.” Do you agree? Explain.
Discuss the advantages and disadvantages of a market-based transfer pricing approach.