Question

what is transfer pricing explain with example the technique of transfer pricing​

Answer 1

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Transfer pricing is an accounting practice that represents the price that one division in a company charges another division for goods or services provided. A transfer price is based on market prices in charging another division, subsidiary, or holding company for services rendered.

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Answer 2

Answer:

Transfer pricing is the setting of the price for goods/services that are sold between related/controlled legal entities within an organisation. For example, if a subsidiary firm sells goods to its parent firm, the cost of those goods paid by the parent firm to the subsidiary firm is the transfer price.

Explanation:

• Transfer pricing is an accounting practice which denotes the price that one division in an organisation charges another division for services/goods offered.
• Transfer pricing facilitates in the setting up of prices for the goods/services exchanged between an affiliate, commonly controlled firms, or a subsidiary which are part of the same larger organisation.
• Transfer pricing leads to tax savings for organisations, although tax authorities can contest their claims

For example,  Let us assume that  a vehicle manufacturer has 2 divisions: Division X, that make software and Division Y that manufactures cars. Division A sells the software to other automobile manufacturers  and also to its parent company. Division Y pays Division X for the software usually at the prevailing market price which Division X charges other automobile manufacturers.