Transfer Pricing: Methods and Approaches for Strategic Management Accounting

Strategic Management
Accounting

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
Transfer pricing refers to the prices of goods and services exchanged between businesses under
shared administration. When a subsidiary firm sells goods or offers services to its parent
company or a sister company, it is paid a transfer fee (Wan, and Hong, 2019). Entities that are
eventually precise by a solitary head corporation are referred to as entities under common
control. Transfer pricing is a mechanism utilized by international firms to allocate earnings
(incomes before interest and excises) crosswise their many subsidiaries. This report highlights
how different companies use transfer pricing in their own management of different departments.
The report talks about two main methods of transfer pricing.
MAIN BODY
Financial institutions, such as banks, have grown into semiautonomous lines of business during
the last few decades. As a result, in order to evaluate the success of each line of business,
management requires separate income statements and balance sheets. Separate income
statements and balance sheets, on the other hand, need the split of net interest income across the
business divisions. This requirement is met by Oracle Transfer Pricing (Clempner, 2018).
Transfer pricing is a method of splitting a financial institution's (such as a bank's) net interest
revenue across its several business divisions (such as the deposit, treasury, and the credit
groups).
Transfer pricing divides net int earnings into controllable workings by separating the money
generated from int rate risk and the money received from risks controlled by ranks of corporate
such as credit risk separately using transmission rates. The transfer rate for money is an int
proportion that represents the worth of the reserves to a fiscal institution, i.e. the amount at which
the financial institution may purchase or trade the reserves on the open market.
The transfer rate serves as a benchmark for establishing if the return on a loan (an asset) is
sufficient to cover the credit risk and running costs connected with the loan, in addition to the
cost of obtaining the money. Furthermore, a fund transfer rate allows you to compare the entire
cost of each funding source, such as deposits (a liability), to other financing options, such as
money or capital market funds (Jain, 2019). In effect, a transfer rate is used to calculate an asset's
or liability's profit contribution.
Move valuing alludes to the value that one division of an organization pays other office for
merchandise and administrations.