Transfer pricing short notes
Answers
Explanation:
The term 'transfer price' is used to describe the actual price charged between the associated enterprises in an international transaction. ... These entities do not deal at arm's length and, thus, transactions between these entities may not be subject to ordinary market forces.
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Explanation:
Transfer price is the price at which related parties transact with each other, such as during the trade of supplies or labor between departments. Transfer prices are used when individual entities of a larger multi-entity firm are treated and measured as separately run entities. It is common for multi-entity corporations to be consolidated on a financial reporting basis; however, they may report each entity separately for tax purposes.
A transfer price can also be known as a transfer cost.
- How Transfer Prices Work
A transfer price arises for accounting purposes when related parties, such as divisions within a company or a company and its subsidiary, report their own profits. When these related parties are required to transact with each other, a transfer price is used to determine costs. Transfer prices generally do not differ much from the market price. If the price does differ, then one of the entities is at a disadvantage and would ultimately start buying from the market to get a better price.
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