Discussion

C13 – What motivate managers and/or managerial accountants of global corporations to set transfer-pricing policies? What are the ethical implications do you see in applying transfer-pricing policies? Explain your answer and provide some examples. (300 words).

C14

– Why do some managers tend to

(a) inappropriately ignore opportunity cost. Explain your answer and provide some examples; AND

(b) inappropriately consider sunk cost in the decision-making process. Explain your answer and provide some examples (300 words)

Also, need two replies 200 words each for each Disc ussion……..

Reply 1,2:

1:

It is only recently that transfer pricing has been able to gain such popularity among marketers. It has been seen that Tax policy and administration concerning international transactions, aggressive tax planning, and tax avoidance, have become a rising issue (Cooper et al., 2017). Transfer pricing is the value of goods and services at which these goods and services are transferred from one unit to another unit of a company. Transfer pricing is set for intermediate products that are supplied by the selling division to buying division. For example, when a subsidiary company sells goods or services to its sister company the price that is charged is known as transfer pricing. The main thing that motivates the top management to conduct transfer pricing is to avoid tax payments and increase the profit of the organization.

2:

It is to be remembered that an organization is functioning so that it is able to make some profits and this can be made possible with the help of transfer pricing. However, it is also to be noted that transfer pricing is an unethical practice. It is known to be an ethical practice because it is used for evading taxations and for the misrepresentation of the financial stability of an organization. It is to be remembered that transfer pricing might have a negative impact on the investments that are made by multinational corporations (De Mooij, & Liu,2020). Although transfer pricing is able to create pause react it is not able to add any value. It is very important for organizations to ensure that they are functioning in the most ethical way so that they can ensure their stability and sustainability in the market. The methods that are used for transfer policy are- Comparable Uncontrolled Price Method, The Resale Price Method, The Cost Plus Method, Transactional Profit Methods, The Profit Split Method, and The Comparable Profits Method  (Gjorgieva-Trajkovska et al., 2019).

Reference

Cooper, J., Fox, R., Loeprick, J., & Mohindra, K. (2017). Transfer pricing and developing economies: A Handbook for policy makers and practitioners. The World Bank.

De Mooij, R., & Liu, L. (2020). At a cost: The real effects of transfer pricing regulations. IMF Economic Review, 68(1), 268-306.

Gjorgieva-Trajkovska, O., Svrtinov, V. G., Dimitrova, J., & Koleva, B. (2019). Transfer pricing–definition and methods. Knowledge International Journal, 35(1), 167-173.

Reply 3,4:

Companies can find new ways to grow through forward-looking managerial accounting approaches. Improving business execution and expanding income and productivity can come about because of applying managerial accounting abilities across the association.

Today’s managerial accounting discipline centers around more than benefit and misfortune proclamations and stretches out into center capacities like planning frameworks, improving business connections inside associations and across the production network, and executing vital execution measures. The best chiefs working inside a committed accounting office should take collective, interdepartmental approaches to accomplishing results.

Transfers, as opposed to transactions, occur when goods, services, rights or risks are moved between two legal entities belonging to the same concern or owner. Unlike transactions, transfers don’t involve two independent economic actors (even if every one of the entities is a generally autonomous division or auxiliary); the two gatherings belong to the same organization and are therefore governed by a single rationale which both encompasses them and extends beyond them. The notion of transfers is accordingly a questionable one, for there is a rest between the legal dimension (two legal entities are united) and the economic dimension (the two entities are governed by the same rationale). Things become even more muddled in the case of international transfers, in which the two entities are located in different countries and hence are governed by different jurisdictions.

Example

Consider ABC Co., a U.S. based pen company manufacturing pens at a cost of 10 cents each in the U.S. ABC Co.’s subsidiary in Canada, XYZ Co., sells the pens to Canadian customers at $1 per pen and spends 10 cents per pen on marketing and distribution. The group’s total profit amounts to 80 cents per pen.

Now, ABC Co. will charge a transfer price of between 20 cents and 80 cents per pen to its subsidiary. In the absence of transfer price regulations, ABC Co. will identify where tax rates are lowest and seek to put more profit in that country. Thus, if U.S. tax rates are higher than Canadian tax rates, the company is likely to assign the lowest possible transfer price to the sale of pens to XYZ Co.

C14
A

From a similar but larger point of view, when calculating the future returns of an investment, the applicable benchmark discount rate – in effect a form of interest rate-is considered the chance cost of capital. In other words, this discount rate addresses the potential returns an investor might have gained somewhere else (for example saving stores or other tasks).

There are several reasons why we have an inclination to overlook opportunity costs: time strain to execute a task, search for immediate outcomes, unwillingness to consider alternative choices, pomposity from past victories, and so on; all of which may, in a way or another, become a catastrophe waiting to happen.

For example, to define the costs of a college education, a student would probably include such costs as tuition, housing, and books. These costs are examples of accounting or monetary costs of college, but they in no way, shape or form give an all-inclusive list of costs. There are many freedom costs that have been overlooked: (1) wages that might have been earned during the time burned through attending class, (2) the value of four years’ professional training offered up to go to class, (3) the value of any activities missed in request to allocate time to studying, and (4) the value of things that might have purchased with tuition cash or the interest the cash might have earned more than four years.

B

A sunk cost is a cost that cannot be recuperated or changed and is independent of any future costs a business may incur. Because a decision made today can just impact the future course of business, sunk costs stemming from earlier decisions ought to be irrelevant to the decision-making measure.

Examples of sunk costs

• Advertising consumption. On the off chance that you advertise another item, that cash is gone and cannot be recovered.
• Research into another item. In the event that the item doesn’t work out, you are left with nothing you can sell on.
• Labour costs. In the event that a firm sets up another business, it should utilize individuals to work and manage, these costs cannot be recuperated.
• Installation of another software framework and working practices.

References:

CliftonLarsonAllen LLP (2013), Transfer Pricing: History and Application of Regulations, available at: http://www.claconnect.com/Tax/United-States-Transfer-Pricing-Tax-Regulations-ArmsLength-Standard-Tangible-Intangible-Property.aspx (accessed 19 June 2015).

Doyle, E., Hughes, J. F. and Summers, B. (2013) An Empirical Analysis of the Ethical Reasoning of Tax Practitioners, Journal of Business Ethics, 114, pp. 325–339.

Urien, B., and W. Kilbourne. 2011. Generativity and self-enhancement values in eco-friendly behavioral intentions and environmentally responsible consumption behavior.Psychology& Marketing 28(1): 69–90.

Vetter, J., A. Benlian, and T. Hess. 2012. Zur Rolle versunkenerKosten in aufeinanderfolgendenITOutsourcing-Entscheidungen. Zeitschriftfu¨rBetriebswirtschaft 82(2): 181–213.