For Each of the Following Statements Regarding the Satisfaction of Transfer

question 21

Essay

For each of the following statements regarding the satisfaction of transfer pricing criteria,identify whether you would expect the transfer pricing method to meet the criteria.Provide a 'yes','no' or 'sometimes' for each situation.

a.Market-based transfer pricing achieves goal congruence.
b.Cost-based transfer pricing achieves goal congruence.
c.Negotiated transfer pricing achieves goal congruence.
d.Market-based transfer pricing motivates management effort.
e.Cost-based transfer pricing motivates management effort.
f.Negotiated transfer pricing motivates management effort.
g.Market-based transfer pricing is useful for evaluating subunit performance.
h.Cost-based transfer pricing is useful for evaluating subunit performance.
i.Negotiated transfer pricing is useful for evaluating subunit performance.
j.Market-based transfer pricing preserves subunit autonomy.
k.Cost-based transfer pricing preserves subunit autonomy.
l.Negotiated transfer pricing preserves subunit autonomy.

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Definitions:

Equity Method

An accounting technique used to record the investments in other companies where the investor has significant influence but does not fully control the investee.

Excess Amortizations

Excess Amortizations refer to the amount by which amortization expenses exceed what is deemed necessary or standard for a given period, often adjusting the value of intangible assets.

Intra-Entity Transactions

Transactions occurring between divisions or departments within the same company.

Intra-Entity Gross Profit

The profit realized from transactions within segments of the same company, not reflected in consolidated financial statements until realized externally.