COST ACCOUNTING
TRANSFER PRICING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Non-recognized transactions cannot be determined at fair value.
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If a commercial transaction cannot be proven to have been carried out by an independent party, then the transaction can be considered as a non-recognized transaction.
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If a transaction has never been carried out by an independent party, then the transaction can be considered as a non-recognized transaction.
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For non-recognized transactions, it can be re-characterized by alternative transactions that are the closest or can be considered as not occurring at all.
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Detailed explanation-1: -A loan is classified as a non-performing asset when it is not being repaid by the borrower. It results in the asset no longer generating income for the lender or bank because the interest is not being paid by the borrower. In such a case, the loan is considered “in arrears.”
Detailed explanation-2: -Income from non-performing assets (NPA) is not recognised on accrual basis but is booked as income only when it is actually received. Therefore, banks should not take to income account interest on non-performing assets on accrual basis.
Detailed explanation-3: -The Reserve Bank pursued a liberal licensing policy, especially pursuant to the recommendations of the Marathe Committee, which had suggested dispensing the ‘one-district, one-bank’ approach. As a result, the number of UCBs had increased from 1311 in 1993 to 1926 by March 2004.
Detailed explanation-4: -1.2 The policy of income recognition should be objective and based on record of recovery rather than on any subjective considerations. Likewise, the classification of assets of banks has to be done on the basis of objective criteria which would ensure a uniform and consistent application of the norms.