Transfer Pricing and Responsibility Centres (Coursework Sample)
· Please no plagerism
· Please use American references on the reference page that have a URL that can be verified online (link should go straight to the PDF or article)
· Please include the page numbers in the cited references
MOD 03 Discussion
Transfer pricing is an important topic from multiple perspectives. It is a global issue affecting taxation, financial results, performance evaluations, and managerial motivation. Ratios are based on the underlying financial information. Transfer pricing is a topic in itself, but it also affects popular financial measures such as EVA (economic value added).
Hiemann, M. and Reichelstein, R. The Dual Role of Transfer Prices in Multinational Firms: Divisional Performance Measurement and Tax Optimization. The European Financial Review. http://www(dot)europeanfinancialreview(dot)com/?p=5741
PWC. (2012). Transfer Pricing. Retrieved from http://www(dot)pwc(dot)com/gx/en/tax/transfer-pricing
Slideshare. (2011). Global Management Accounting. Retrieved from http://www(dot)slideshare(dot)net/costmgmt/issues-in-global-management-accounting-transfer-pricing
Value Based Management.net. (n.d.). Economic Value Added (EVA). Retrieved from http://www(dot)valuebasedmanagement(dot)net/methods_eva.html
In this module, we’ll emphasize transfer pricing issues and responsibility centers. Comment on the importance of these issues, how they are related, and why they are very important in the business environment.
Above find some resources for some of these topics that you can use as a starting point. The links are not meant to provide any particular viewpoint but are a mix of resources viewed both from an accounting and a business perspective.
Choose one or two topics for further investigation and share your knowledge with the class. Provide factual information (not merely opinions) backed up by current news, examples, or other interesting details. Your comments should be in your own words and include references in APA format, if applicable.
Transfer pricing and responsibility centres
Transfer pricing is understood the method that is employed in selling products from one subsidiary to another subsidiary within a business organization. It occurs when 2 companies which are part of the same transnational corporation trade with each other (Boyd, 2010). A case in point is when a UK-based subsidiary of Pepsi purchases something from a Germany-based subsidiary of Pepsi. When the parties in the transaction establish a price for that transaction, then it is referred to as transfer pricing. Transfer pricing basically impacts the subsidiaries’ purchasing behaviour and might have income tax implications for the business organization as a whole.
Even though it is not illicit or necessarily abusive in itself, what is abusive or unlawful is transfer pricing manipulation or transfer mispricing. Stuart (2009) stated that transfer mispricing is essentially a kind of a more common phenomenon referred to as trade mispricing, which includes trade between parties that are not related, for instance re-invoicing. Roughly 60% of global trade takes place within, instead of between transnational corporations and governments lose a considerable amount of tax revenue because of transfer pricing.
A responsibility centre refers to a set of resources and/or activities that are assigned to a subunit manager. It is worth mentioning that reporting upward is done by using responsibility accounting – the manager of the subunit is responsible for only those resources or activities which the manager controls (Kafafy, 2013). There are 4 kinds of responsibility centres: Investment centre – the manager has control over operating assets, revenues, as well as costs. Profit centre – the manager has control over revenue and costs. Revenue centre – the manager has control over revenue only. Cost centre – manager has control over costs only (Kafafy, 2013).
A transfer price, as Walther (2014) pointed out, is an internal charge which is established primarily for exchanging services and/or goods between responsibility centres within a business organization. For purposes of external reporting however, the...
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